Arizona “income tax credit” program passes U.S. Supreme Court muster

A group of Arizona taxpayers filed a lawsuit against the Arizona Department of Revenue to challenge a tax law that granted a state income tax credit for contributions made to school tuition organizations that provide scholarships to private and parochial school students. The law allowed taxpayers to obtain a dollar-for-dollar tax credit for contributions made to these organizations. The taxpayers claimed that this law allowed state income tax revenue to pay tuition for students at religious schools, because it permitted taxpayers to contribute to private schools in lieu of paying state income tax. The end result was that money was being diverted from the state and used to fund private schools, some of which allegedly discriminated on the basis of religion in selecting students.

The United States Supreme Court found that the taxpayers could not challenge the law. In order to show that they had been harmed, and therefore could challenge the law, taxpayers had to show that their tax money was “extracted and spent” in violation of the Constitution. This means that the state would have to collect the money from taxpayers and spend it in a manner that violates the Constitution. In this case, the Court stated that the taxpayers chose to contribute directly to the private schools and spent their own money to do so, as opposed to money that had been collected by the state. Any contributions made were the decisions of private taxpayers regarding their own money and the funds passed directly from the taxpayer to the private school without state intervention.

Since this case was decided by the United States Supreme Court, this ruling means that a similar law passed in other states, including Texas, would likely survive a federal court challenge.