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In a 5-2 decision, the Supreme Court of the State of Montana recently held that the state’s Tax Credit Program was unconstitutional. Although only a portion of the program was initially challenged, the court determined that the Montana Department of Revenue could not rectify the statute by adding new rules to circumvent the constitutional issue.

Tax Credit Program and Rule 1

The Montana Legislature passed the “Tax Credit for Qualified Education Contributions” in 2015, which allowed for two types of dollar to dollar tax credits to taxpayers who donate to educational programs in Montana. One of the two types, the disputed “Tax Credit Program,” provided taxpayers with up to a $150 tax credit based on a donation to a Student Scholarship Organization (SSO). SSOs were created in order to provide “parental and student choice in education with private contributions through tax replacement programs.” However, there are limitations when donating to an SSO. For example, donors only donate to SSOs “generally,” they may not direct that their donations go to a specific parent or Qualified Education Provider (QEP). Additionally, the Montana Department of Revenue, which is charged with administering the program, adopted Rule 1 to supplement the Tax Credit Program. Rule 1 added to the original definition of QEP, and stated that a QEP may not be “a church, school, academy, seminary, college, university, literary or scientific institution or any other sectarian institution owned or controlled in whole or in part by any church, religious sect, or denomination….” Before this, the Montana Legislature had defined QEP essentially as “a private school.” 

The department added Rule 1 after identifying what it considered to be a constitutional deficiency. In its argument to uphold Rule 1, the department reasoned that, the way the Tax Credit Program was written was a violation of Article X, Section 6, of the Montana Constitution. Relying on its rulemaking authority to “adopt rules, prepare forms, and maintain records that are necessary to implement and administer the [Tax Credit Program],” the department created Rule 1 to exclude religiously-affiliated private schools from the program in order to comply with the Montana Constitution.

Parents Go to Court

Plaintiffs, who are the parents of children who attend religiously affiliated private schools, asserted that Rule 1 wrongfully violated the free exercise clauses of the Montana and United States Constitutions. Further, Plaintiffs argued that the department’s Rule 1 was unnecessary because the Tax Credit Program and the legislature’s definition of QEP were already constitutional. Under the Legislature’s definition, religiously affiliated schools would qualify as a QEP. However, Rule 1 limits the original definition and excludes religiously affiliated schools.

Although Plaintiffs claimed a violation of the U.S. Constitution the Montana Supreme Court determined that federal analysis was not necessary because the Montana Constitution draws a “more stringent line than that drawn by the United States Constitution.” Under the state’s Constitution, “the legislature, counties, cities, towns, school districts, and public corporations” are strictly prohibited from making any “direct or indirect appropriation or payment from any public fund or monies…for any sectarian purpose….” The court determined that from the plain language of the statute and the Constitutional Convention Delegates’ intent, it was clear that Article X, Section 6 was intended to prevent all types of aid. In its analysis the court recognized that, according to Convention transcripts, the Delegates had a strong desire to ensure that public education “remained free from religious entanglement” and that the public school system received “unequivocal support.” The court quoted Delegate Burkhardt, stating that “any diversion of funds or effort from the public school system would tend to weaken that system in favor of schools established for private or religious purposes.” The court specifically noted that the Delegates fully understood that the state constitution could prohibit forms of state aid that were otherwise permissible as federal aid and aimed to more broadly prohibit aid to sectarian schools.

Court Holds the Entire Tax Credit Program Unconstitutional

Plaintiffs initially filed the action challenging Rule 1, not the entire Tax Credit Program. The department, however, stated that Rule 1 was created in order to circumvent the unconstitutional language and that it was authorized to create such a rule under the Legislature’s instructions to “administer [the Program] in compliance with…Article X, Section of the Montana Constitution.” Ultimately, the court held that the Tax Credit Program would be unconstitutional in all of its applications. The court determined that because it was the Legislature that enacted the Tax Credit Program, it would be the entity wrongfully providing aid to sectarian schools, which would permit the Legislature to “indirectly pay tuition at private, religiously affiliated schools.”

What Does Article X, Section 6 Say?

The court relied heavily on the plain language of Article X, Section 6, first pointing out that the title, “Aid prohibited to sectarian schools,” is both expansive and forceful and clearly demonstrates the drafter’s intent. As the court analyzed the language of the provision it stated that the provision “begs three main inquiries, each of which cast a broad net clearly intended to prohibit ‘any’ type of state aid being used to benefit sectarian education.” First, the provision prohibits numerous entities from providing aid, including the legislature, counties and cities. Second, the provision bans any type of direct or indirect aid. And third, the language specifically states that aid is prohibited for any sectarian purpose.

Tax Credit Aids Sectarian Schools

After its analysis, the court determined that the “Legislature, by enacting a statute that provides a dollar-for-dollar credit against taxes owed to the state, is the entity providing aid to sectarian school via tax credits….” This type of tax credit would essentially permit the Legislature to “indirectly pay tuition at private, religiously-affiliated schools.” The court defended its reasoning by explaining that, if a parent donated to an SSO and received a $150 tax credit and their child also received a tuition scholarship from an SSO, that parent would receive a dollar-for-dollar reimbursement for that donation in the form of a tax credit, and would subsequently owe $150 less in tuition to their child’s QEP. Despite the fact that the department adopted Rule 1 in an attempt to avoid this issue, the court ultimately held hat “there is simply no mechanism within the Tax Credit Program itself that operates to ensure that an indirect payment of $150 is not used to fund religious education in contravention of Article X, Section 6.”

Is this a case of religious discrimination?

In a statement to Budget & Tax News, Lennie Jarratt, project manager for the Center of Transforming Education, asserted that the Montana Supreme Court’s decision “deprives students of a quality education.” Additionally, Tim Benson, a policy analyst with the Heartland Institute, stated that this is a case of discrimination against religious Montanans and that “it will take the Supreme Court to reverse th[e] decision…noting how Montana is discriminating against its religious residents by blocking them from receiving public benefits.”

It is possible that Benson could be correct, at least in his assertion that the Supreme Court might hear the case. Petitioners filed a writ of certiorari on March 12, 2019, claiming that the Montana Supreme Court’s invalidation of a “generally available and religiously neutral student-aid program” violated the Religious Clauses and Equal Protection Clause of the United States Constitution. The petition has garnered significant attention, so far seven amicus briefs have been filed in support of Petitioners. If the Supreme Court decides to hear the case, it will be forced to decide what Petitioners describe as a “long-standing split” between multiple federal Circuit courts and state courts concerning the constitutionality of “barring religious options from student-aid programs.”

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