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 to the United States Supreme Court. 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, save for a reversal by the United States Supreme Court. Before the state court 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 requires 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.

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 June 28, 2019, the U.S. Supreme Court agreed to consider Espinoza v. Montana Dept of Revenue, a ruling by the Montana Supreme Court decision invalidating the state’s tax credit scholarship program. In considering whether to overturn the ruling of the Montana Supreme Court, the question for the Court to decide is this: “Does it violate the Religion Clauses or Equal Protection Clause of the United States Constitution to invalidate a generally available and religiously neutral student-aid program simply because the program affords students the choice of attending religious schools?” A decision from the U.S. Supreme Court is expected prior to June 30, 2020. Espinoza v. Montana Dept of Revenue, U.S. Supreme Court Case No. 18-1195

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. The Montana’s Dept of Revenue then appealed the case to the Montana Supreme Court. 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). 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

After the Montana Supreme Court ruled against parents, on March 12, 2019, the Institute for Justice, on behalf of parents, filed a petition for writ of certiori, asking the U.S. Supreme Court to accept the case and review it in light of 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). Plaintiffs argued there is a Deep Split in state and federal circuit courts regarding treatment of religious entities in generally available student-aid programs and only the U.S Supreme Court can correct the constitutional confusion.

In a separate case, 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)

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