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.
America’s first tax-credit scholarship program
32,585 scholarships awarded (2016–17)
100 percent of families with children eligible statewide
276 participating schools (2016–17)
54 scholarship organizations awarding scholarships (2016–17)
Average scholarship value: $1,780 (2016–17)
Value as a percentage of public school per-student spending: 24 percent
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.
School tuition organizations (STOs) determine scholarship amounts. In tax year 2019, individual taxpayers that contribute to STOs may claim a dollar-for-dollar credit of up to $569, and married couples filing jointly may claim up to $1,138. 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.)
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).
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