Wednesday, June 16, 2004

Following up on Monday’s post on the Court’s 5-4 ruling in Hibbs v. Winn that taxpayers can use federal courts to challenge state taxes, Allan Samansky (Ohio State) offered these thoughtson the TaxProf Discussion Group (reprinted here with Allan’s permission):

I have read and been thinking a little about Hibbs v. Winn, one of the Supreme Court cases decided on Monday. Interesting opinions, with Court splitting 5-4. But two issues not discussed at all in the Supreme Court opinions are also really interesting to me and (I strongly suspect) others on this listserve.

The case involves a 100% tax credit for the Arizona income tax (up to $625 for a married couple) for contributions to “school tuition organizations” (STO’s), which award scholarships to students in private elementary or secondary schools. Various restrictions on STO’s, but (as Ninth Circuit decision tells us) most are formed to help students in Catholic schools. In fact, STO’s can limit their grants to children of families who belong to a particular faith. The Ninth Circuit also tells us that STO’s must qualify as 501(c)(3) charities.

The Supreme Court and Ninth Circuit decision dealt only with the Tax Injunction Act (TIA) and held that the TIA does not bar this case being brought in federal court. Some very interesting issues of statutory interpretation, but that is not what interests me most.

What interests me? First, standing. Isn’t there an issue of whether the plaintiffs, identified as Arizona taxpayers, have standing? Not discussed at all in Supreme Court or Ninth Circuit opinions. Could it be raised when the case is heard again in District Court? Justice Ginsburg, who wrote the majority decision, states that the plaintiffs are relying on the Establishment Clause. But I didn’t think that an alleged violation of the First Amendment would give a taxpayer standing in this type of case. I welcome any help on this, particularly because I am far from an expert on this issue.

What else interests me? Could a 100% credit for contributions to STO’s violate the Establishment Clause when deductions (as under section 170 of IRC) to STO’s do not? This was discussed in a related Arizona Supreme Court case (972 P.2d 606 (1999)), which upheld the credit on a facial challenge before the credit went into effect. Great issue, I think.