School tuition organizations (STOs) determine scholarship amounts.

In the tax year 2017, individual taxpayers contribute to STOs may claim a dollar-for-dollar credit of up to $546, and married couples filing jointly may claim up to $1,092. The amount an individual can claim for a credit increases each year by the amount the Consumer Price Index changes.

Students must be in grades K–12 or be a preschool enrollee identified by the school district as having a disability under the Individuals with Disabilities Education Act or Section 504 of the Rehabilitation Act. STOs must consider financial need when awarding scholarships and cannot make decisions based solely on donor recommendations. Individual taxpayers may not make STO contributions earmarked for their own dependents, nor may donors make agreements among one another to “trade” donations for their respective dependents.

Arizona’s individual tax-credit scholarship program is one of the most universal programs in the nation. It does not restrict eligibility based on arbitrary family income levels, prior public school enrollment status or any other factor. The program also excels by not restricting the amount a scholarship can be worth. Every school choice program should provide those opportunities. Another plus of Arizona’s individual tax-credit scholarship program is the lack of red tape placed on participating schools, which must comply with the state’s private school regulations, including health, safety and nondiscrimination requirements. The program could improve by increasing the amount that individual and joint taxpayers can claim as a credit. This improvement would allow for more donations to STOs, which would in turn allow those STOs to increase the number and funding value of scholarships. (Note: This issue is somewhat alleviated by the existence of the “switcher” individual tax-credit scholarship program.)

• Income Limit: None
• Prior Year Public School Requirement: None
• Geographic Limit: Statewide
• Enrollment Cap: None
• Scholarship Cap: None
• Testing Mandates: None
• Credit Value: 100 percent
• Total Credit Cap: Yes
• Budget Cap: None

STO Requirements:

• Use at least 90 percent of contributions for scholarships
• Make scholarships available for more than one school
• May allow donors to recommend student beneficiaries but shall not award, designate or reserve scholarships solely on the basis of donor recommendations
• Cannot exchange recommendations of student beneficiaries with other donors
• Report annually to the state:
  • Data on accepted contributions, grants awarded, the dollar amount of scholarships granted to students who qualify for the free or reduced-price lunch program, the dollar amount of scholarships granted to those students whose household income falls between 185 percent and 342 percent of the federal poverty level ($46,435 and $85,842 for a family of four in 2018–19), the amount of money being held for identified student scholarships in future years, a list of participating schools with the number and dollar amount of scholarship awards received, the salaries 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. §§ 43-1089; 43-1601 through 1605

In January 1999, the Arizona Supreme Court upheld the constitutionality of this tax-credit scholarship program. This decision was appealed to the U. S. Supreme Court, which, in October 1999, declined to review the case. The Arizona Supreme Court ruling was allowed to stand. Kotterman v. Killian, 972 P.2d 606 (Ariz. 1999), cert. denied, 528 U.S. 921 (1999).

The program was attacked again after the Kotterman ruling, also to no avail. On April 4, 2011, the U.S. Supreme Court upheld Arizona’s personal tax-credit scholarships, ruling that taxpayers do not have standing under the Establishment Clause to challenge a tax-credit scholarship program. The court rejected opponents’ position that personal income is government property, stating, “Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. That premise finds no basis in standing jurisprudence. Private bank accounts cannot be equated with the Arizona State Treasury.” Arizona Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436, 179 L. Ed. 2d 523 (2011).