As with education vouchers, recent years have seen an abundance of state legislative proposals supporting tuition tax credits for businesses or individuals who wish contribute to K–12 non-profit private schools. At the end of 2006, only four US states had passed such legislation; currently, at least 13 states offer some type of K–12 tuition tax credit program—this, despite the fact that most new programs, or changes in existing programs, are litigated by public education groups or the ACLU, often on separation of church and state grounds. With tuition tax credits, however, no public funds are dispersed to private schools.
One can find summaries of eleven states’ programs at the same website referred to in my April 12 post on school vouchers—the National Conference of State Legislature’s. Descriptions of two more—in Minnesota and Illinois—can be found in a thorough document from the Minnesota House of Representatives.
Though programs vary across the states, they tend to have certain common characteristics, including: caps on the size of claims; caps on the size of the statewide program; means testing for participating students; and state requirements for participating private schools. In legislative jargon, tax creditable donations are made to “school tuition organizations” (STOs) “eligible nonprofit scholarship-funding organizations” or the like. In some states, a participating private school may be an STO; in others, STOs must be independent of the schools receiving the scholarships.
Program restrictions can be placed on the students benefiting from a scholarship, on the donors, or on the schools receiving the scholarship money. The most common student restriction, in 9 of 13 states, allows scholarships only for students from lower-income families, though the threshold household income varies greatly from state to state. Another fairly common student restriction (in about half of the states) allows scholarships only for students entering kindergarten or having attended public school the previous year (i.e., any student currently enrolled in private school is ineligible).
All but three states (Illinois, Louisiana, and Minnesota) cap the amount of donations the statewide scholarship program may accumulate each year. Most states also cap the amount an individual or corporate donor may claim in tax credit. Only one state—Minnesota—allows an individual to claim a tax credit that exceeds the tax liability, thus generating a refund. Three states allow businesses to donate any amount up to their limit of tax liability. Most states, however, do not allow an even exchange of tax credit dollars for donation dollars. Rather, they allow a certain percentage of the donated amount to be claimed as tax credit—25% in Illinois but, more commonly, in the range of 50 to 75%.
Restrictions on the private schools receiving the scholarship funds are less common than those on students or donors. Five states require participating schools to administer standardized tests. One state—Iowa—requires that participating private schools be accredited by the state education agency.
Despite the restrictions, tuition tax credit programs are popular. Table 2 of the aforementioned State of Minnesota document lists the number of claimants and overall size of the program in each state in a recent year. The number of individuals or businesses claiming tuition tax credits ranged from 34 in Rhode Island to more than a quarter million in both Illinois and Minnesota, the two states with the longest-running programs.
