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Tax credit math: Who owns your money?

A New Hampshire Superior Court judge has managed to mangle a relatively simple school funding question that the U.S. Supreme Court got right only two years ago. As a result, the State of New Hampshire now arguably owns not just the money you have paid in taxes, but all the money you claim in tax credits, too.

In the last session, state legislators passed a law that created a business tax credit for donations made by businesses to educational scholarship organizations. Businesses that donated to the scholarship groups could take a credit against their state business taxes for 85 percent of the donated sum. The groups would then dispense scholarships to students who applied. Families that received a scholarship could use it to pay for an education at any approved school, public or private.

The system was designed specifically to prevent the money from ever entering state possession. The tax credit is for money given to the scholarship groups. The scholarships go to parents, not schools. Once parents have the money, they could choose to spend it at a religious school. But the fact that the money never belonged to the state meant very clearly that no state support of religion actually occurred.

Amazingly, Judge John Lewis in Strafford County Superior Court ruled that the system violated the state constitution’s clause prohibiting “money raised by taxation” from going to “the use of the schools of institutions of any religious sect or denomination.” What money raised by taxation?

In 2011, the U.S. Supreme Court ruled that a similar scholarship program in Arizona was constitutional because to hold that the tax credit was a state support of religion “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.”

Precisely. Which is why this ruling must be appealed.


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