Tax credits in more than 40 states are now vulnerable to federal court challenges after a Supreme Court ruling Monday.
The court ruled 5-4 that taxpayers can use federal courts to make constitutional challenges to state taxes, the Associated Press reported. A group of Arizona taxpayers sued the state in federal court to oppose income tax credits given to residents who donate money to private schools.
The taxpayers argued that the tax credits are an unconstitutional promotion of religion. The state uses the private school donations to fund grants and scholarships with the idea of giving parents more educational options. The state's tax break allows a dollar-for-dollar credit of up to $500 for an individual and $625 for a married couple.
Arizona argued that the federal courts must not interfere with state tax decisions, citing a 1937 law. Arizona had the backing of 40 other states and the Bush administration in arguing that constitutional challenges to state income tax credits belong in state court.
Justice Ruth Bader Ginsburg, wrote for the majority, "In decisions spanning a near half century, courts in the federal system, including this court, have entertained challenges to tax credits authorized by state law."
Justice Anthony M. Kennedy, in a dissent joined by Chief Justice William H. Rehnquist, and Justices Antonin Scalia and Clarence Thomas, said "state courts are due more respect than this."