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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. Although the program has universal eligibility for students, the current funding restrictions might limit 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 (2016–17)

  • 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.

Montana allows individuals and corporations to 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 was limited to $3 million in 2015–16, a limit that increases 10 percent each year if the cap is reached. No taxpayer may receive a credit larger than $150.

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 ($5,402 for 2016–17). Each SSO’s average scholarship may not exceed 30 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($3,241 for 2016–17).

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 start in a state with no charter school or private school choice, but it is a limited one. The fact Montana disallows SSOs from setting their own rules and regulations by requiring them to work with every private school undermines donor intent and the unique missions of the SSOs, as well as any geographic differences between them. Additionally, the cap of $150 per donor is so small as to be almost insignificant. It will require dozens of donors just to fund a single scholarship. The rules regarding the amount of funding per scholarship averages 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. However, 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 ($5,402 for 2016–17)
  • Testing Mandates: Administer a Nationally Norm Reference test in grades 8 and 11
  • Credit Value: 100%
  • Total Credit Cap: $150
  • Budget Cap: $3 million (escalator)

 

SGO Requirements:

  • Must be a certified 501(c)
  • May not spend more than 10 percent of its donations on the administration of the fund
  • Must keep separate accounts for scholarship and administrative money
  • Must report donations and expenditures to the department of revenue
  • Must pay out all donations in three years
  • May not limit gifts to a single school or type of school
  • Must complete an annual review
  • Must not allow any donation to be earmarked for a particular family, child, or school
  • May not limit gifts to specific pupils
  • Must keep records pursuant to the educational environment of the student
  • Must not provide scholarships exceeding 50 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($5,402 for 2016–17)
  • Must ensure that the average scholarship does not exceed 30 percent of the average per-pupil expenditure for the second most recently completed fiscal year ($3,241 for 2016–17)

Legal History

On December 16, 2015, 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 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. In May 2016, plaintiffs filed a motion for summary judgment. Pending. Espinoza v. Department of Revenue, Montana Eleventh Judicial District Court, Case No. DV 15-1152A.

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. Pending. Armstrong v. Kadas, United States District Court for the District of Montana, Case No. 6:15-cv-00114-SHE.

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