South Dakota’s Partners in Education Tax Credit Program was enacted in 2016, launched in 2016, and began providing scholarships in 2016–17. This program provides tax credits to insurance companies who donate to nonprofit scholarship granting organizations (SGOs), which will then provide private school scholarships to students who meet the income and grade requirements. Learn more about the program’s funding, eligibility, and rules on this page.
The nation’s 21st tax-credit scholarship program
281 students participating (2016–17)
39 percent of families with children income-eligible statewide
1 scholarship organization (2016–17)
43 schools participating (2016–17)
Average scholarship value: $748 (2016–17)
Maximum value as a percentage of public school per-student spending: 8%
South Dakota’s Partners in Education Tax Credit Program offers tax credits to insurance companies that donate to scholarship-granting organizations (SGOs), nonprofits that provide students private school scholarships. The allowable tax credit is 80 percent of the amount of contributions made during the previous taxable year, beginning in 2017. Only companies that are liable to pay the insurance company premium and annuity tax may claim the credit, although no credit may be claimed for the portion of the tax that is collected and set aside for workers’ compensation coverage or for the tax that is levied on fire insurance premiums. The program is capped at $2 million in 2016–17.
The average value of all scholarships awarded by an SGO may be worth up to 82.5 percent of the state’s share of the per-pupil allocation ($4,023 in 2015–16). SGOs must pay half of the scholarship amount at the beginning of the first semester and half at the beginning of the second semester.
Students are eligible if they live in families with incomes up to, but not exceeding, 150 percent of the federal free and reduced-price lunch (FRL) program ($67,433 for a family of four in 2016–17) and either (1) attended a public school the preceding semester, (2) is starting at a K–12 school in South Dakota for the first time or (3) is entering kindergarten, first grade or ninth grade. Once a student has received a scholarship, that student remains eligible for three years or, if the student is entering high school, until high school graduation regardless of income. After the initial period of income eligibility, scholarship students remain eligible if their family income in the prior year does not exceed 200 percent of the FRL program ($89,910 for a family of four in 2016–17).
South Dakota’s tax-credit scholarship program is a great step forward in educational opportunity for students across the state, but it has room to grow. Nearly 60,000 South Dakota school children are eligible for the scholarship program out of about 147,000 statewide. That’s less than half of the total student population. Policymakers should expand this program’s eligibility criteria to allow more students across the state to access a school that best meets their learning needs and add a “once in, always in” clause. Currently the program allows an 80 percent tax credit for contributions and has a cap of $2 million, which is small compared to other programs. To incentivize more giving, the state should offer a 100 percent credit for contributions and remove the cap or insert an automatic annual escalator. Policymakers should not limit the program only to insurance companies. If the program allowed other corporations and taxpayers to contribute to SGOs in return for tax credits, SGOs could distribute more and better-funded scholarships to students. The scholarships’ portability throughout the school year is a positive feature, but student and parent choices might be hindered because the program rigidly prescribes that scholarships be distributed only at the start of each public school semester. Scholarship funding should be fluid to allow parents to change schools, whenever necessary. South Dakota’s testing requirements are good, because they empower parents to choose the standardized exam their children take. But the state should remove the rule requiring South Dakota students to attend public school for one semester prior to application, particularly because the funds following a child to private school are made up of charitable contributions and not public dollars.
S.D. Codified Laws §§ 13-65-1 through 12
No legal challenges have been filed against the program.