Each school tuition organization (STO) determines the amount of scholarships it distributes. Scholarships are capped at $5,500 in grades K–8 and $6,800 in grades 9–12 for 2019–20. Those amounts increase annually by $100. Corporate taxpayers that contribute to STOs may claim a tax credit equal to the full amount of their contribution. The program is limited to a total of $102.5 million in available tax credits in 2019–20, a figure that will rise by a decreasing rate until 2022–23.

All students who receive scholarships under this program must come from families whose household incomes are equal to or below 185 percent of the federal free and reduced-price lunch program guidelines ($88,129 for a family of four in 2019–20). Additionally, students must either be (1) enrolled in private school kindergarten, (2) enrolled in a private preschool program for students with disabilities, (3) a public school enrollee for at least 90 days in the previous year or one full semester of the current school year, (4) a dependent of an active-duty member of the military stationed in Arizona or (5) a prior scholarship recipient under this program or the individual tax-credit scholarship program.

Arizona’s corporate tax-credit scholarship program has room to grow, particularly with student eligibility limited to those with family incomes lower than 185 percent of the free and reduced-price lunch threshold. On funding power, the $105.2 million total credit cap limits both the number of scholarships that STOs can award and the amount of each scholarship ($2,470 per scholarship, on average, in 2016–17), which is far less than what students receive on average in their public schools. The program reasonably requires that schools comply with the state’s private school regulations, including health, safety and nondiscrimination requirements as well as fingerprinting teachers, but avoids unnecessary or harmful regulations. To make this program more expansive, lawmakers should lift the low-income eligibility requirement and remove or dramatically increase the cap on available tax credits.

• Income Limit: 185 percent x FRL
• Prior Year Public School Requirement: Yes
• Geographic Limit: Statewide
• Enrollment Cap: None
• Scholarship Cap: $5,500 (K–8), $6,800 (9–12)
• Testing Mandates: None
• Credit Value: 100 percent
• Total Credit Cap: None
• Budget Cap: $102.5 million

STO Requirements:

• Use at least 90 percent of contributions for scholarships
• Make scholarships available for more than one school
• Must allow the state to verify that scholarships are awarded to students attending a qualified school
• Report annually to the state data on accepted contributions, grants awarded, amount of money being held for identified student scholarships in future years, list of participating schools with the number and dollar amount of scholarship awards received, salary of the STO’s top three officials for the fiscal year and proof of independent review of financial statements by a certified public accountant

Ariz. Rev. Stat. §§ 43-1183; 43-1501 through 1507; and 20-224.06

On March 12, 2009, the Arizona Court of Appeals upheld Arizona’s corporate tax-credit scholarships and the Arizona Supreme Court refused to hear an appeal. Green v. Garriott, 212 P.3d 96 (Ariz. App. 2009).