435 P.3d 603
Mont.2018Background
- In 2015 the Montana Legislature enacted a dollar-for-dollar tax credit (up to $150) for taxpayers who donate to Student Scholarship Organizations (SSOs); SSOs award tuition scholarships to private schools defined as Qualified Education Providers (QEPs).
- The Department of Revenue (Department) was charged with administering the program and instructed to implement it consistent with Article V, §11(5) and Article X, §6 of the Montana Constitution (the no-aid-to-sectarian-schools clause).
- The Department promulgated Admin. R. M. 42.4.802 ("Rule 1") narrowing the statutory definition of QEP to exclude schools "owned or controlled" by religious organizations, concluding the statutory program otherwise aided sectarian schools.
- Parents of children attending a religiously affiliated private school (Plaintiffs) sued, challenging Rule 1 as exceeding agency authority and violating free exercise; the District Court granted Plaintiffs summary judgment, enjoining Rule 1 and finding the statutory credit constitutional.
- The Montana Supreme Court reversed: it held the statutory Tax Credit Program (§15-30-3111, MCA) violates Article X, §6 because it results in indirect state aid to sectarian schools, severed the tax-credit provision from the remainder of the statutory scheme, and found Rule 1 both unnecessary and beyond the Department’s rulemaking authority.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Tax Credit Program violates Mont. Const. Art. X §6 (no aid to sectarian schools) | The statutory credit is constitutional; Rule 1 unlawfully excludes religious schools and burdens free exercise | The program, as written, results in indirect state aid to sectarian schools and is therefore unconstitutional without Rule 1 | Held: The Tax Credit Program violates Art. X §6 because it creates indirect payments/subsidies to sectarian schools and is facially invalid; §15-30-3111 severed from Part 31 |
| Whether the Department exceeded its rulemaking authority by adopting Rule 1 | Rule 1 is necessary to protect constitutional guarantees and salvage the statute | Rule 1 conflicts with the Legislature’s clear definition of QEP and exceeds delegated authority | Held: Rule 1 both unnecessary (because statute is unconstitutional) and inconsistent with statute; agency exceeded authority under §2-4-305(6) |
| Whether the Tax Credit is an "appropriation or payment from public funds" (direct vs. indirect) | The credit is not a public appropriation or payment because funds never enter the treasury; therefore Art. X §6 does not apply | The dollar-for-dollar credit functions as a tax expenditure/subsidy that diverts public revenue and indirectly pays tuition at sectarian schools | Held: Court treats the credit as an unconstitutional indirect payment/subsidy for purposes of Art. X §6; the diversion of tax liability is constitutionally significant regardless that funds bypass the treasury |
| Remedy and severability | If Rule 1 unlawful, leave statute in place and remand; plaintiffs sought relief removing the agency rule | Department urged that Rule 1 was the appropriate cure; otherwise statute must be invalidated or narrowed by Legislature | Held: §15-30-3111 is severed from the rest of Part 31 (statute contains severability clause); Rule 1 is superfluous and invalid as beyond agency power |
Key Cases Cited
- Locke v. Davey, 540 U.S. 712 (2004) (federal balance between Establishment and Free Exercise informs review of state prohibitions on aid to religion)
- Walz v. Tax Comm'n of N.Y., 397 U.S. 664 (1970) (there is "play in the joints" between Establishment and Free Exercise doctrines)
- Everson v. Board of Educ., 330 U.S. 1 (1947) (discussion of government aid and religious institutions)
- Nyquist v. Mauclet, 413 U.S. 756 (1973) (state tuition assistance to nonpublic school parents invalid under Establishment Clause)
- Zobrest v. Catalina Foothills Sch. Dist., 509 U.S. 1 (1993) (when aid benefits the student alone, it may not constitute aid to school)
- Zelman v. Simmons-Harris, 536 U.S. 639 (2002) (private-choice programs can avoid Establishment Clause violation when aid flows from genuine private choice)
- Mueller v. Allen, 463 U.S. 388 (1983) (tax deductions for educational expenses distinguished from direct aid to nonpublic schools)
- Trinity Lutheran Church v. Comer, 137 S. Ct. 2012 (2017) (denial of generally available public benefit to religious entity is discrimination against religion)
- State ex rel. Chambers v. School Dist. No. 10, 155 Mont. 422 (1970) (Montana precedent holding public funds may not pay teachers at parochial schools because secular/sectarian line indistinguishable)