In April 1997, the Arizona legislature enacted a law authorizing tax credits for scholarships for private religious education. The program allows taxpayers to reduce their state tax liability by making a donation to “school tuition organizations” that use the funds to provide scholarships for students attending private schools, including religious ones. Taxpayers brought a facial challenge to the statute in state court, on both state and federal constitutional grounds, but the Arizona Supreme Court dismissed it.
When the program took effect, virtually all of the tuition organizations that came into being were established by religious organizations and gave scholarships exclusively to students of their denominations for attendance at exclusively religious schools. A new group of taxpayers then filed suit in federal court challenging the statute, both on its face and as-applied, under the federal Constitution.
The defendant argued that this second action was barred by the Tax Injunction Act, which prohibits the federal courts from enjoining any “assessment” of state taxes. The Ninth Circuit rejected this argument, interpreting the Act to apply to only those actions that decrease revenue production.
Before the U.S. Supreme Court, we authored an amicus brief in December 2003, joined by People For the American Way, arguing that the defendant’s construction of the Act would mark a radical departure from the Court’s Establishment Clause jurisprudence to date and gravely weaken civil rights protections, that this second challenge is distinct from that rejected by the Arizona Supreme Court, and that existing preclusion doctrines adequately protect the finality of state court judgments.
On June 14, 2004, the Supreme Court issued a 5-4 decision in the plaintiffs’ favor, finding that the Act bars only those suits in which state taxpayers seek to avoid paying state taxes. Justices Kennedy, Rehnquist, Scalia and Thomas dissented, arguing that the majority’s reasoning showed disrespect for state courts.