Montana AG’s Office Disputes Dept. of Revenue on Education Tax Credit Bill

The Montana Attorney General’s Office has issued a letter to the Director of the Montana Dept. of Revenue, Mike Kadas, disputing the legal reasoning behind the DOR’s recent controversial rule to exclude private religious schools from an education tax credit program, established by a bill passed in the Montana legislature earlier this year.

The DOR is arguing that allowing faith-based schools to benefit from the tax credit program would violate the Montana Constitution’s ban on “direct or indirect” appropriations to sectarian schools.

“The Department of Justice believes that Rule 1 is neither authorized nor required by the Montana Constitution, and in fact would unnecessarily put the Montana Constitution in potential conflict with the United States Constitution,” Solicitor General Dale Schowengerdt writes in the letter. “Therefore, we advise you to not adopt it.”

SB 410 establishes a program that would allow taxpayers to take a tax credit of up to $150 for donations to scholarship organizations that could then provide tuition money for students to attend private schools, or for donations to “innovative educational programs” at public schools. As is common, a state agency — in this case, the DOR — is tasked with writing the specific rules under the broad framework of the bill.

The prohibition of the program being used in the context of faith based schools would effectively nullify one of the primary objectives of the legislation since nearly all private schools in the state are religiously affiliated.

The letter from Solicitor General Schowengerdt argues makes two primary arguments against the DOR rule, with the first being that tax credits are not considered “appropriations” under Montana law. As reported by Media Trackers late last month in the case of MEA-MFT v. McCulloch, state courts have held that tax credits are not appropriations of state money.

“The money is a tax refund or credit that a taxpayer may or may not claim. In the case of the credit, it is money that was never in the general fund, and in the case of a refund, it would be money that the state is not entitled to keep,” states the letter, citing the legal the MEA-MFT v. McCulloch case for precedent.

The letter also notes that U.S. Supreme Court has held that there is a difference between tax credits and government expenditures.

The second major argument made by the Solicitor General is that, if the Montana Constitution’s prohibition on appropriations to faith-based schools was read so broadly as to disallow faith based schools from benefiting from the program, it would likely the put the state Constitution in conflict with the federal constitution.

“Federal courts have held that to categorically exclude religious entities from a neutral, generally available benefit violates the religion clause of the First Amendment, as well as Equal Protection under the 14th Amendment,” the letter says.

State Sen. Llew Jones (R-Conrad) sponsored SB 410, and has spoken out strongly against the actions of the DOR claiming — along with many others who voted for the bill — that the DOR’s rule violates legislative intent. Earlier this month it was announced that legislative poll of all 150 state legislators would be conducted asking whether or not the DOR is undermining the bill’s intent.

According to Lee Newspapers, the chair of the Revenue and Transportation Interim Committee — State Sen. Fred Thomas (R-Stevensville) — said that he had received notes of objection to the rule from 52 legislators as of Nov. 6.