Education freedom and taxes: Two birds, one stone

Many individuals claim to support education freedom and even tout support or engage in debates online, but how many of us are contributing to the development of the education freedom ecosystem? The good news is that there is a role for everyone; it’s just a matter of identifying the right role for you at the right time. As Benjamin Franklin notably wrote, “…in this world nothing is certain except death and taxes,” and Montana’s Tax Credit Scholarship offers an opportunity to engage in the education freedom ecosystem while simply fulfilling your tax obligations.

Montana’s Tax Credit Scholarship has an extraordinary history, culminating in a US Supreme Court ruling known as Espinoza v. Montana Department of Revenue. Additionally, unlike any other state, Montana allows taxpayers to choose to support private schools through the Student Scholarship Organization Program and/or public schools through the Innovative Educational Program. Both programs reside in MCA Title 15 Chapter 30, most recently updated in House Bill 408. Individuals and businesses can contribute to both programs, provided neither tax credit receipt exceeds the annual donation cap of $200,000 per taxpayer per program. Additionally, participants who jointly own a business can donate up to $200,000 per tax entity per year per program. Taxpaying entities receive a dollar-for-dollar credit with a state aggregate cap of $5 million per tax year per program, resulting in a full state aggregate of $10 million.

The tax credit cannot exceed one’s income tax liability; however, the credit can be carried over for three years. Public schools and SSOs issue receipts directly to taxpayers based on pledged donations. If the nonprofit organization secures a receipt, taxpayers can use it when filing their taxes to claim the credit. Receipt requests through the Department of Revenue are processed on a first-come, first-served basis up to the annual aggregate. Only SSOs and public schools can access the portal; therefore, due to the state-imposed caps, not all requests may be fulfilled.

Taxpayers can utilize the Tax Credit Scholarship each year, but obtaining a receipt from the Department of Revenue can be challenging. In 2023, the seven registered SSOs in the state met the $2 million aggregate cap in just under six minutes. Among these SSOs, Alliance for Choice in Education, the provider to the largest range of schools in the state, ultimately returned over half of the collected, pledged donations in 2023.

A taxpayer can ask for a return of the donation if they do not receive the tax credit receipt, eliminating the risk of overspending. In 2023, 43 individuals and eight businesses accessed the tax credit between all seven SSOs. Similarly, 86 individuals and 16 businesses accessed the credit for public schools, constituting 28 different public schools across the state.

ACE, the longest-standing and widest-distributing SSO in Montana, played a pivotal role in improving the TCS. Fifty private schools in the state spanning sixteen counties will accept scholarships from ACE. In 2023, ACE provided approximately 1,200 students with scholarships for their chosen private schools. The law requires students to select where to apply their scholarship, not the SSO. Families applying for ACE scholarships typically have an average annual income of $44,500, and ACE scholarships only cover up to half of the full tuition per school but never exceed $4,000 per recipient. This underscores that most families seeking these scholarships cannot easily afford private school tuition. Further, there is more demand for these scholarships than there are funds available to donate.

So, it’s time for education freedom enthusiasts to put their money where their mouths have been. It’s as simple as visiting ACE’s webpage and pledging a donation to try for the Tax Credit Scholarship with no obligations, or you can pick up the phone and call your local, traditional school to request participation in the Innovative Education Program.

Trish Schreiber is a senior education fellow at the Montana-based Frontier Institute.