Montana - Tax Credits for Contributions to Student Scholarship Organizations

school choice

Montana – Tax Credits for Contributions to Student Scholarship Organizations

Montana – Tax Credits for Contributions to Student Scholarship Organizations

This tax-credit scholarship—Montana’s first school choice program—was enacted and launched in 2015. In 2018, the Montana Supreme Court ruled the program unconstitutional and rendered it inoperable, and the ruling is being appealed. Although the program has universal eligibility for students, the current funding restrictions has limited its impact. Learn more about the program’s details on this page, including eligibility, funding, regulations, legal history and more.

Program Fast Facts

  • America’s 20th tax-credit scholarship program

  • 25 students participating (2016–17)

  • 100 percent of students eligible statewide

  • 1 scholarship organization awarding scholarships (2017–18)

  • Average scholarship value: $500 (2016–17)

  • Average value as a percentage of public school per-student spending: 5 percent

     

Program Details

All Montana K–12 students are eligible for scholarships through the Tax Credits for Contributions to Student Scholarship Organizations program

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

Individuals and corporations can claim a 100 percent tax credit for contributions to approved Student Scholarship Organizations (SSOs), nonprofits that provide scholarships for private school and tutoring. The total amount of tax credits awarded statewide is limited to $3 million per year, a limit that can increase 10 percent if the cap is met. No taxpayer may receive a credit larger than $150.

Beginning in the 2016–17 school year, SSOs in Montana started providing scholarships to students to attend private school or receive tutoring.

Student Funding

Scholarship amounts are determined by SSOs. The maximum scholarship is 50 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($5,514 for 2017–18). Each SSO’s average scholarship may not exceed 30 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($3,308 for 2017–18).

Student Eligibility

All students between the ages of five and 18 in Montana are eligible.

EdChoice Expert Feedback

Montana’s tax-credit scholarship program is a step in the right direction in a state with no charter school or private school choice, but it is a small step. Unfortunately, a recent Montana Supreme Court decision has rendered the program inoperable as of the publication of this edition of The ABCs of School Choice. Before the ruling, Montana prohibited SSOs from defining their own mission by requiring them to work with every private school. Additionally, the excessively restrictive cap of $150 per donor makes it exceedingly difficult for SSOs to raise funds. It will require dozens of donors just to fund a single scholarship. The rules regarding the amount of funding allowed per scholarship are overly complex as well. State government should allow SSOs to set whatever funding criteria they determine prudent and decide how to best manage their own funds. There are some positive notes, however. The program is universal for all children, which is the hallmark of any good educational choice program. Lastly, the escalator clause allows for the program to grow with the donations received, a feature that is absent from some of the other better known programs. Proponents of the program face an uphill battle in order to stay the legal decision and attempt to take the case to the U.S. Supreme Court. Likewise, Montana has a long way to go in order to make this a robust program.

Rules and Regulations

  • Income Limit: None
  • Prior Year Public School Requirement: None
  • Geographic Limit: Statewide
  • Enrollment Cap: None
  • Scholarship Cap: 50 percent of the statewide average per-pupil expenditure ($5,514 for 2017–18)
  • Testing Mandates: Administer a Nationally Norm Referenced test in grades 8 and 11
  • Credit Value: 100%
  • Total Credit Cap: $150
  • Budget Cap: $3 million (escalator)

 

SSO Requirements

  • Be a certified 501(c)3
  • Refrain from spending more than 10 percent of its donations on the administration of the fund
  • Must keep separate accounts for scholarship and administrative money
  • Report donations and expenditures to the state department of revenue
  • Pay out all donations in three years
  • Not limit gifts to a single school or type of school
  • Complete an annual review
  • Prevent any donation from being earmarked for a particular family, child or school
  • Not limit gifts to specific pupils
  • Keep records pursuant to the educational environment of the student
  • Refrain from providing scholarships that exceed 50 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($5,514 for 2017–18)
  • Ensure the average scholarship does not exceed 30 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($3,308 for 2017–18)

Legal History

On December 12, 2018, the Montana Supreme Court ruled that Montana’s tax-credit scholarship program is unconstitutional under Art. X, Sec, 6 which prohibits state aid to sectarian schools. The court reasoned that Montana’s constitutional provision restricting state aid to sectarian schools is broader than that of the federal constitution, and therefore, did not consider the U.S. Supreme Court decision upholding the constitutionality of tax-credit scholarship programs in ACSTOA v. Winn (see Arizona). For the first time since tax-credit scholarships began in 1997, a court held that state tax credits for contributions to tax-credit scholarship programs are indirect payments of tuition to private schools by the state. Espinoza v. Montana Dept of Revenue, 2018 MT 306.

A motion to stay the judgment pending review by the U.S. Supreme Court was filed at the Montana Supreme Court on December 24, 2018. Plaintiffs are expected to file a writ of certiori, asking the U.S. Supreme Court to accept the case, in 2019, and review it in light of the Trinity Lutheran v. Comer, 582 U.S. (2017) decision (religious entities cannot be excluded from a generally available public benefit program simply because they are religious).

This case began on December 16, 2015, when, as a consequence of rules promulgated by the Montana Department of Revenue prohibiting scholarship-granting organizations from granting scholarships to children to attend religious schools (contrary to statute), the Institute for Justice (IJ) filed a lawsuit in state court advocating on behalf of parents who seek to use these scholarships to send their children to religiously affiliated schools as the new state statute allows. IJ contends that the rules are contrary to the statute and that by excluding these religious schools, the department is violating the religious liberty and equal protection rights of Montanans.

On March 31, 2016, Judge David Ortley from the Montana Eleventh Judicial District Court issued a temporary injunction prohibiting the Montana Department of Revenue from implementing a rule prohibiting religious schools from participating in the program. The judge ruled that both the U.S. and Montana Constitutions prohibit the establishment or free exercise of religion and that the proposed rule would hinder parents’ ability to choose a religious education for their children. The judge concluded that the plaintiffs were likely to succeed on the merits of the case. On May 23, 2016, Montana’s Eleventh Judicial District Court granted plaintiff’s motion for summary judgment and permanently enjoined the department’s rule prohibiting religious schools from participating in Montana’s tax-credit scholarship program. Espinoza v. Department of Revenue, MT 11th Dist. Ct., No. DV 15-1152A (May 2017). The case was then appealed directly to the Montana Supreme Court. The case was argued April 10, 2018 and decision handed down December 12, 2018. Appeal to the U.S. Supreme Court is pending.

On December 28, 2015, also as a consequence of rules promulgated by the Montana Department of Revenue prohibiting scholarship-granting organizations from granting scholarships to children to attend religious schools, the Pacific Legal Foundation (PLF) filed a lawsuit in federal court advocating on behalf of parents who seek to use these scholarships to send their children to religiously affiliated schools and on behalf of the Association of Christian Schools International (ACSI), which has 10 member schools that are religiously affiliated in Montana. PLF contends that enforcement of the administrative rule violates the U.S. Constitution’s Establishment, Free Exercise, and Equal Protection clauses, as well as Montana law. The court dismissed the case on a motion to abstain in light of the state court’s issuance of a temporary injunction against the Department of Revenue’s implementation rule. Plaintiffs appealed to the Ninth Circuit Court of Appeals, arguing that abstention is not proper in this case. In August 2018, at the court’s request, the parties submitted briefs concerning whether the Tax Injunction Act barred plaintiff’s claim. Pending. Armstrong v. Kadas, United States District Court for the District of Montana, Case No. 6:15-cv-00114-SHE.

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