March 30 2012

New Hampshire Tax-Credit Scholarships Pass Constitutional Muster

Vicki E. Alger

The New Hampshire Senate passed a bill on March 21 that would create an education tax-credit scholarship program.

The Senate’s proposed education tax-credit scholarship program, S.B. 372, would allow non-profit scholarship organizations to collect corporate donations for scholarships worth up to $2,500 so students from low- and middle-income families could attend the public or private school of their choice. Home-schooled students would be eligible for scholarships worth one-fourth of that amount for educational expenses.

Corporate taxpayers would receive 85 percent of their donations as a credit against their tax liability. New Hampshire has no personal income or sales tax.

“Education tax credits enable more choices for parents, putting accountability for education directly in their hands,” said bill sponsor Sen. Jim Forsythe (R-Strafford).

Critics contend that such a program would be unconstitutional for allowing businesses to make tax-deductable contributions for scholarships that students could use to attend private schools.

“The New Hampshire constitution on taxes is unique,” said University of New Hampshire law professor Marcus Hurn. Since it bans public support for religious schools, he explained, the state cannot allow tax credits for scholarships, either.

Research by the Concord-based Josiah Bartlett Center found that similar tax-credit scholarship programs in other states have withstood legal challenges. The proposed New Hampshire program “is constitutionally tested, fiscally prudent, and a remarkably powerful tool to improve public education in New Hampshire,” noted Bartlett Center President Charlie Arlinghaus.

Arizona became the first state to enact a tax-credit scholarship program back in 1997. Since then nine additional programs have been enacted across the country, benefitting approximately 82,000 students nationwide.

The constitutions of 15 states with private-school parental choice programs today contain prohibitions similar to New Hampshire’s against public support for religious schools, including Florida, Georgia, Iowa, Indiana, Oklahoma, Pennsylvania, and Arizona. 

“If we start to question whether or not a tax credit is government money,” noted Sen. Forsythe, “all [of a] sudden we’re looking at donations to charities, donations to church would be subject to that kind of scrutiny and I don’t think anybody agrees with that.”

The U.S. Supreme Court certainly doesn’t, and last April it agreed with Sen. Forsythe’s reasoning.

Similar to opponents of the proposed New Hampshire tax-credit scholarship, opponents of Arizona’s program insisted that private donations are actually government funds. As such, opponents claimed, donors are paying their sate taxes to non-profit scholarship granting organizations instead of government.

The U.S. Supreme Court ruled in Arizona Christian School Tuition Organization v. Winn that opponents’ position “assumes that all income is government property, even if it has not come into the tax collector’s hands.  That premise finds no basis in standing jurisprudence.” (See p. 3)

The New Hampshire Senate passed the education tax-credit scholarship program by a 15-9 vote. The bill is currently with the Senate Finance Committee awaiting review.

“This is the most important bill the legislature will pass this year,” said Arlinghaus. “[It] encourages businesses to use private dollars to support families searching for the right school for their children.”

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