Green v. Garriott

• Decision Date: 12 March 2009
• Docket Number: No. 1 CA-CV 07-0424.,1 CA-CV 07-0424.
• Citation: 212 P.3d 96,221 Ariz. 404
• Parties: Christie A. GREEN; Dawn Wyland; Eric Meyer; Rae J. Waters; The Professional Group Public Consulting, Inc., an Arizona corporation, Plaintiffs/Appellants, v. Gale GARRIOTT, in his official capacity as Director of the Arizona Department of Revenue, Defendant/Appellee. Stella Gomez; Cecilia Hernandez; Stefanie Ortega; Kerin Zimmerman; Arizona School Choice Trust, Inc., a private non-profit corporation, Intervenor-Defendants, Appellees.
• Court: Arizona Court of Appeals

212 P.3d 96

221 Ariz. 404

Christie A. GREEN; Dawn Wyland; Eric Meyer; Rae J. Waters; The Professional Group Public Consulting, Inc., an Arizona corporation, Plaintiffs/Appellants, v. Gale GARRIOTT, in his official capacity as Director of the Arizona Department of Revenue, Defendant/Appellee Stella Gomez; Cecilia Hernandez; Stefanie Ortega; Kerin Zimmerman; Arizona School Choice Trust, Inc., a private non-profit corporation, Intervenor-Defendants, Appellees.

No. 1 CA-CV 07-0424.

Court of Appeals of Arizona, Division 1, Department E.

March 12, 2009.

As Amended April 15, 2009.

Sacks Tierney P.A. By Marvin S. Cohen, Scottsdale, and Arizona School Boards Association By Christopher P. Thomas, and Arizona Center for Law in the Public Interest By Timothy M. Hogan, Phoenix, Attorneys for Appellants.

Terry Goddard, Attorney General By Michael F. Kempner, Assistant Attorney General, Phoenix, Attorneys for Appellee.

Institute for Justice Arizona Chapter By Timothy D. Keller, Jennifer M. Perkins, Tempe, and Institute for Justice By William

M. Mellor, Clark M. Neily, III, Arlington, VA, and Thomas A. Zlaket PLLC By Thomas A. Zlaket, Tucson, Attorneys for Appellee-Intervenors.

Alliance Defense Fund By Benjamin W. Bull, Gary S. McCaleb, Bryon J. Babione, Scottsdale, Attorneys for Amicus Curiae School Choice Arizona, Inc.

OPINION

GEMMILL, Judge.

¶ 1 In this appeal we address whether Arizona Revised Statutes ("A.R.S.") section 43-1183 (Supp.2008), establishing a state income tax credit for scholarship contributions by corporations, contravenes the United States and Arizona Constitutions. For the reasons that follow, we hold that A.R.S. § 43-1183 passes constitutional muster.

A.R.S. § 43-1183

¶ 2 A.R.S. § 43-1183 establishes a dollar-for-dollar tax credit that is available to any corporation paying Arizona corporate income taxes. The tax credit is given "for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization." A.R.S. § 43-1183(A). A "school tuition organization" ("STO") is defined as:

[A] charitable organization in this state that both:

(a) Is exempt from federal taxation under § 501(c)(3) of the internal revenue code and that allocates ninety per cent of its annual revenue for educational scholarships or tuition grants to children to allow them to attend any qualified school of their parents' choice.

(b) Provides educational scholarships or tuition grants to students without limiting availability to only students of one school.

A.R.S. § 43-1183(Q)(2).

¶ 3 To obtain the tax credit, the corporate taxpayer must, before making a contribution, notify the STO of the total amount of contributions that the taxpayer intends to make to the STO. A.R.S. § 43-1183(D). Before accepting the taxpayer's contribution, the STO must request pre-approval from the Arizona Department of Revenue ("Department") for the amount of the proposed contribution. Id. The Department then has twenty days to pre-approve or deny the proposed contribution. Id. If the Department approves the contribution, then the STO must notify the corporate taxpayer of the pre-approval, and the taxpayer has ten days after receiving notice of the pre-approval to make the contribution to the STO selected by the taxpayer. Id.

¶ 4 The Department is required to permit "the tax credits on a first come, first served basis." A.R.S. § 43-1183(C)(3). The Department is not permitted to allow tax credits "that exceed in the aggregate, a combined total of ten million dollars in any fiscal year," with the tax credit cap to be increased annually by twenty per cent. A.R.S. § 43-1183(C)(1). A tax credit is not permitted "if the taxpayer designates the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student." A.R.S. § 43-1183(I).

¶ 5 Under the corporate tax credit program, STOs are required to use at least ninety per cent of the contributions they receive to provide educational scholarships or tuition grants. A.R.S. § 43-1183(J). STOs are only permitted to provide educational scholarships or tuition grants to students whose "family income does not exceed one hundred eighty-five per cent of the income limit required to qualify a child for reduced price lunches under the national school lunch and child nutrition acts." Id.

PROCEDURAL HISTORY

¶ 6 On September 19, 2006, Christie A. Green, Dawn Wyland, Eric Meyer, Rae J. Waters, and The Professional Group Public Consulting Inc. ("Appellants"), filed a complaint against Gale Garriott, in his official capacity as Director of the Arizona Department of Revenue, seeking a declaration that A.R.S. § 43-1183 is unconstitutional plus injunctive relief enjoining the administration of § 43-1183. Stella Gomez, Cecilia Hernandez, Stefanie Ortega, Kerin Zimmerman, and Arizona School Choice Trust, Inc., moved to intervene as Defendants, and the superior court granted their motion.

¶ 7 Appellees moved to dismiss Appellants' complaint under Arizona Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted. On March 5, 2007, the trial court granted Appellees' motion.

¶ 8 Appellants timely appealed and we have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003).¹

ANALYSIS

¶ 9 "In reviewing motions to dismiss for failure to state a claim, we assume that the allegations in the complaint are true and determine if the plaintiff is entitled to relief under any theory of law." Sensing v. Harris, 217 Ariz. 261, 262, ¶ 2, 172 P.3d 856, 857 (App.2007).² We apply a de novo standard of review to issues of statutory interpretation. City of Phoenix v. Harnish, 214 Ariz. 158, 161, ¶ 6, 150 P.3d 245, 248 (App.2006).

¶ 10 Appellants urge four bases for finding A.R.S. § 43-1183 unconstitutional, arguing that the tax credit violates: (1) the Establishment Clause of the United States Constitution; (2) Article 2, Section 12, of the Arizona Constitution; (3) Article 9, Section 10, of the Arizona Constitution; and (4) Sections 20 and 26 of the Arizona Enabling Act, Act of June 20, 1910, ch. 310, 36 Stat. 557. We address each of these arguments in turn.

Establishment Clause

¶ 11 The Establishment Clause of the United States Constitution states that "Congress shall make no law respecting an establishment of religion." U.S. Const. amend I.³

¶ 12 In Lemon v. Kurtzman, 403 U.S. 602, 612-13, 91 S.Ct. 2105, 29 L.Ed.2d 745 (1971), the United States Supreme Court adopted a three-part test to determine the viability of statutes juxtaposed against the Establishment Clause: "First, the statute must have a secular legislative purpose; second, its principal or primary effect must be one that neither advances nor inhibits religion; finally, the statute must not foster `an excessive government entanglement with religion.'"⁴ (Citation omitted).

Purpose

¶ 13 We need not speculate as to the purpose of § 43-1183, as our legislature included an express purpose: "Pursuant to § 43-223, Arizona Revised Statutes, the legislature enacts § 43-1183, Arizona Revised Statutes, as added by this act, to encourage businesses to direct a portion of their taxes by contributing to school tuition organizations in order to improve education by raising tuition scholarships for children in this state." 2006 Ariz. Sess. Laws, ch. 14, § 6 (emphasis added).

¶ 14 Appellants argue that this is not a valid secular purpose, as § 43-1183 is "not restricted, as the Zelman program was, to students whose public school options are inadequate, nor is it restricted to students whose parents are without the means to afford payment of private school tuition." We reject this assertion.

¶ 15 First, the Zelman court did not rest its finding of constitutionality with respect to the Cleveland statute on the basis that its beneficiaries were lower-income families with inadequate choices—the secular purpose of the Ohio statute was not even in dispute. Zelman, 536 U.S. at 649, 122 S.Ct. 2460.

¶ 16 Second, our legislature may act in the absence of the restrictive features identified by Appellants. A system of education, which includes both private and public institutions, stands to gain much by the presence of competition. See Mueller v. Allen, 463 U.S. 388, 395, 103 S.Ct. 3062, 77 L.Ed.2d 721 (1983) ("[P]rivate schools may serve as a benchmark for public schools, in a manner analogous to the `TVA yardstick' for private power companies."); Wolman v. Walter, 433 U.S. 229, 262, 97 S.Ct. 2593, 53 L.Ed.2d 714 (1977) (Powell, J., concurring in part, concurring in judgment in part, and dissenting in part) ("Parochial schools ... often afford wholesome competition with our public schools; and in some States they relieve substantially the tax burden incident to the operation of public schools. The State has, moreover, a legitimate interest in facilitating education of the highest quality for all children within its boundaries, whatever school their parents have chosen for them."), overruled on other grounds by Mitchell v. Helms, 530 U.S. 793, 120 S.Ct. 2530, 147 L.Ed.2d 660 (2000).

¶ 17 Finally, the program adopted by our legislature limits scholarship recipients "to children whose family income does not exceed one hundred eighty-five per cent of the income limit required to qualify a child for reduced price lunches under the national school lunch and child nutrition acts." A.R.S. § 43-1183(J). While this qualification does not limit the scholarship recipients to only the very lowest-income families, it evidences a clear desire on the part of our legislature to provide an educational choice to parents who probably could not otherwise afford to send their children to a private school. Cf. Mueller v. Allen, 463 U.S. 388, 395, 103 S.Ct. 3062, 77 L.Ed.2d 721 (1983) ("An educated populace is essential to the political and economic health of any community, and a state's efforts to assist parents in meeting the rising cost of educational expenses plainly serves this secular...