Tax Credits for Contributions to Student Scholarship Organizations
- Tax-Credit Scholarship
- Enacted 2015
- Launched 2015
The Montana Tax Credits for Contributions to Student Scholarship Organizations program 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 is limited to $1 million in 2022 and $2 million in 2023 and each year beyond, though the limit can increase 20 percent if the cap is met. No taxpayer may receive a credit larger than $200,000. Beginning in the 2016–17 school year, SSOs in Montana started providing scholarships to students to attend private school or receive tutoring. In 2018, the Montana Supreme Court ruled the program unconstitutional and rendered it inoperable, and the ruling was appealed to the United States Supreme Court, which overturned the state court’s ruling in June 2020. Learn more about the program’s details on this page, including eligibility, funding, regulations, legal history and more.
We do not administer this program.
Students Participating (Fall 2020)
of Students Eligible Statewide
Scholarship Organizations (2020–21)
Average Scholarship Value (2016–17)
Average Value as a Percentage of Public School Per-student Spending
All Montana K–12 students are eligible for scholarships through the Tax Credits for Contributions to Student Scholarship Organizations program
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).
All students between the ages of 5 and 18 in Montana are eligible.
EdChoice Expert Feedback
Montana’s tax-credit scholarship program suffers from design flaws that severely limit its ability to empower families to access schools that are the right fit for their children. Only a couple dozen students currently participate. Policymakers could do much more to expand educational opportunity.
All Montana students are eligible to participate but fewer than 0.01 percent of students statewide actually use a scholarship.
The average scholarship size is only $500, which is just 4 percent of the average expenditure per student at Montana’s district schools, though the cap on scholarship values is somewhat higher (30% of the average per-pupil expenditures at district schools, or about $3,300). 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. Moreover, only $2 million in tax credits are available in 2023, which is equivalent to only 0.16 percent of Montana’s total K–12 revenue.
In order to expand access to educational choice, Montana policymakers should dramatically increase the available tax credits and eliminate the cap on credits per donor. The program could also be converted into an education savings account to ensure that all students have access to the education that’s the right fit for them, whether private school or a customized course of education.
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%
- Per Donor Credit Cap: $200,000
- Total Tax Credit Cap: $1 million in 2022; $2 million in 2023 (escalator)
- 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)
On June 30, 2020, the U.S. Supreme Court ruled in favor of Montana parents seeking religious school options for their children, in Espinoza v. Montana Dept of Revenue, 591 U.S. ___ (2020). The Court held that, “The application of the no-aid provision discriminated against religious schools and the families whose children attend or hope to attend them in violation of the Free Exercise Clause of the Federal Constitution.” Citing the constitutionally protected right of parents to choose a religious school for their children’s education, (Pierce v. Society of Sisters, 268 U. S. 510 (1925)), the Court said, “the no-aid provision penalizes that decision by cutting families off from otherwise available benefits if they choose a religious private school rather than a secular one, and for no other reason.” In school choice programs, no-aid provisions, commonly known as Blaine Amendments in state constitutions, cannot be used to exclude religious schools merely because they are religious.
The case began on December 16, 2015, when plaintiff parents represented by the Institute for Justice filed the initial lawsuit. On May 23, 2017, 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).
On December 12, 2018, the Montana Supreme Court ruled that Montana’s tax-credit scholarship program is unconstitutional under Art. X, Sec. 6 of their state constitution, which prohibits state aid to sectarian schools. Although the Court found that the Montana Department of Revenue had exceeded its authority in adopting a regulation to exclude religious schools that was in conflict with the statute enacted by the state legislature, 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) or Trinity Lutheran Church of Columbia, Inc. v. Comer, 137 S. Ct. 2012 (2017) (holding that religious entities cannot be excluded from a generally available public benefit program simply because they are religious). 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
On January 30, 2019, the U.S. Court of Appeals for the Ninth Circuit’s December 7, 2018 ruling (dismissing a case originally filed December 28, 2015 against the Montana Department of Revenue by the Pacific Legal Foundation) became effective. The parties, including parents and the Association of Christian Schools International (which included 10 religiously-affiliated member schools in Montana), submitted briefs concerning whether the Tax Injunction Act barred their claims. The case was dismissed. Armstrong v. Kadas, No. 16-35422 (2019)