Given the neutrality of the statute, and the multiple layers of private choice that stand between the legislature’s decision to provide a corporate tax credit and the eventual acceptance of scholarship funds by sectarian schools, we do not believe the Establishment Clause has been violated.The court also rejected the argument that the tax credit violates state constitutional provisions prohibiting the laying of taxes or appropriation of public money to aid any private or religious school. Finally the court rejected the argument that the tax credit violates the state's responsibility , set out in the Arizona Enabling Act, to maintain a system of public schools.
Dissenting in part, Judge Kessler argued that the tax credit raises Establishment Clause problems because "the record raises questions as to the tax program's secular purpose, that Arizona tax scheme is not neutral with respect to religion and does not provide benefits directly to a wide spectrum of individuals defined without reference to religion." He explains:
The statutory scheme does not limit either the STOs or the recipient private schools from discriminating on the basis of religion on who will receive tuition scholarships from the tax credits. Indeed, the complaint alleges both the STOs and the recipient schools do and will discriminate on the basis of religion....The Arizona Capitol Times reports on the decision.
§ 43-1183 has an aggregate annual limit of tax credits. Thus, it is possible ... to have several corporations use the entire aggregate tax credit in any year ... to fund scholarships to one STO, which will only fund schools of one religious denomination....
