Ariz. court upholds private school tax credit

PHOENIX - The Arizona Court of Appeals handed school-choice supporters a victory Thursday, upholding the constitutionality of a state tax break for businesses that make donations to help pay for tuition grants for students attending private schools.

A split three-judge panel's majority opinion said the state corporate income tax credit ``passes constitutional muster'' because it doesn't violate state or federal constitutional provisions dealing with religion and education. The credit serves a valid nonreligious educational purpose without directly aiding religion, according to the opinion signed by Judges John Gemmill and Patricia Norris.

The Court of Appeals' decision, which upheld a 2007 ruling by a trial judge, cited a 1999 Arizona Supreme Court decision that upheld a similar dollar-for-dollar individual income tax credit for donations for private school tuition grants.

The 1999 Supreme Court ruling said the individual tax credit did not violate the prohibition against state funding of private or religious education, largely because the money involved was donated by the individuals and never reached the state treasury.

In her March 2007 ruling that also cited the Supreme Court decision, Judge Janet Barton of Maricopa County Superior Court dismissed a lawsuit by the American Civil Liberties Union and the Arizona School Boards Association.

Supporters of the corporate tax credit said it would enable more parents to send their children to the schools of their choice.

``Today's real winners are the families who rely on (the tax credit) to attend high-performing private schools tailored to meet their children's unique educational needs,'' said Tim Keller, an Institute for Justice attorney who helped defend the credit.

Critics argued that the tax credit diverts money from the public school system and that it violated constitutional provisions barring public funding for religious schools and mandating that the state provide a general and uniform public school system.

The Court of Appeals panel's third judge, Donn Kessler, agreed with most of the majority opinion but dissented in part. He said it was uncertain whether the credit runs afoul of the U.S. Constitution's prohibition against government advancing religion generally or putting one religion over others.

The corporate tax credit was a priority for school-choice advocates during the 2005 and 2006 legislative sessions. The state House on Wednesday approved and sent to the Senate a bill to remove the credit's scheduled 2011 expiration date.

On another school-choice issue, a separate legal controversy over two small voucher programs that provided state-funded payments to pay for disabled and foster children to attend private schools is pending at the state Supreme Court.