Montana's high court on Wednesday struck down the state's tax credit for school scholarships because it primarily benefited religious schools, running afoul of Montana's Constitution.

The state program allowed donors who contributed to scholarship funds for students to reduce their state taxes by $1 for every $1 they gave to the fund. 

The Montana Department of Revenue had excluded religious programs from participating in the tax credit program because it allowed religious schools to benefit from public dollars. 

But parents of students at a religious private school in Flathead County had challenged the department's decision, arguing the ban was discriminatory.

In Wednesday's opinion, Justice Laurie McKinnon said the program, enacted by the 2015 Legislature, was a violation of the Montana Constitution's ban on aid to religious schools.

The court's majority said it doesn't matter that the money benefiting religious schools does not come directly from state coffers because the constitutional article at hand prohibits indirect payments, in this case dollar-for-dollar tax breaks.

"Here, the taxpayer 'donates' nothing, because for every dollar the taxpayer diverts to the (school), the taxpayer receives one dollar in consideration from the State in the form of a lower tax bill," the opinion states.

Mike Kadas, who retired as director of the Department of Revenue in May, said he was pleased with Wednesday's decision.

"I'm happy they recognized the difficult situation that the department was in," he said. "Our responsibility is to follow the law (and) the pre-eminent law is the constitution. We did our best to do that."

An attorney for the Revenue Department said in April that 90 percent of the private schools that signed up for scholarship funds under the program were religious, meaning the Legislature's tax credit program almost exclusively benefited religious schools.

The case drew input from a host of education and legal groups who submitted briefs arguing for and against the tax credit.

Alex Rate, legal director for the American Civil Liberties Union of Montana, called the opinion a victory for the state's public schools and taxpayers.

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"Montana's students and parents have the right to choose a religious education, but it is unconstitutional for taxpayers to foot the bill for private, religious schools," Rate said in an emailed statement. 

"Tuition-tax credit programs like Montana's are a transparent attempt to circumvent state constitutions that prohibit public funding of religious education," Alex J. Luchenitser, associate legal director for Americans United for Separation of Church and State, said in a release Wednesday. "The Montana Supreme Court correctly saw through this money-laundering scheme. Other state courts should follow suit."

Kadas said he was not surprised by the swell of support that arose on both sides of the question once the case reached the Supreme Court.

"We recognized that this was a major constitutional issue from the beginning," he said. 

Justices Beth Baker and Jim Rice dissented from the court's opinion. The tax credit program, Rice wrote, is neutral in that it does not require funds to be directed to any particular school. Additionally, he said, it's not the religious schools who benefit from the tax credit program, but the student or family receiving the scholarship from those donations at the front end of the tax credit program.

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