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Arizona – Original Individual Income Tax Credit Scholarship Program

Arizona – Original Individual Income Tax Credit Scholarship Program

The Arizona legislature passed this program in 1997, and it launched in the same year. This tax-credit scholarship program allows taxpayers to receive tax credits for their donations to nonprofit organizations that provide school scholarships to K–12 students. Learn more about the program on this page, including eligibility, funding, regulations, legal history and more.

Program Fast Facts

  • America’s first tax-credit scholarship program

  • 30,049 scholarships awarded (2014–15)

  • 100 percent of families with children eligible statewide

  • 338 participating schools (2014–15)

  • 50 scholarship organizations awarding scholarships (2014–15)

  • Average scholarship value: $1,846 (2014–15)

  • Value as a percentage of public school per-student spending: 25 percent

Program Details

Arizona’s Original Individual Income Tax Credit Scholarship Program Participation*

Scholarships Awarded
Calendar/School Year

Click the + symbols to learn more about this program’s details.

The Arizona legislature passed this program in 1997, and it launched in the same year. This tax-credit scholarship program allows taxpayers to receive tax credits for their donations to nonprofit organizations that provide school scholarships to K–12 students.

Student Funding

Scholarship amounts are determined by school tuition organizations (STOs).

In the tax year 2017, individual taxpayers contributing 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.

Student Eligibility

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.

EdChoice Expert Feedback

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 taxcredit 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. Where the program could improve is 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.)

Rules and Regulations

  • 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, dollar amount of scholarships granted to students who qualify for the free or reduced-price lunch program, dollar amount of scholarships granted to those students whose household income falls between 185 percent and 342 percent of the federal poverty level ($44,955 and $83,106 for a family of four in 2016–17), 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, the 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.

Governing Statutes

Ariz. Rev. Stat. §§ 43-1089; 43-1601 through 1605

Legal History

In January 1999, the Arizona Supreme Court upheld the constitutionality of this tax-credit scholarship program in Kotterman v. Killian. 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). The program was attacked after the Kotterman ruling, once again 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).

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