How the Tuition Tax Credit Program Works
In 1997 Arizona instituted the Tuition Tax Credit Program, making it possible for families to receive a tax credit of up to $625 for donations to school tuition organizations (STOs) and up to $250 for contributions to public school extracurricular activity funds or to support character education programs. Legislative efforts to expand the program to grant businesses similar tax credits have not been successful thus far.
The money raised by the STOs goes mostly to low-income families in the form of partial scholarships to private schools. There are currently 47 different STOs in Arizona. Some, like the Arizona School Choice Trust and the Arizona Scholarship Fund, are general scholarship organizations. Others fund scholarships to private schools within a particular county (like the School Association of Yuma or the Catholic Tuition Organization of the Diocese of Phoenix), particular types of education (like the Foundation for Montessori Scholarships) or religious education (like the Jewish Community Day School Scholarship Fund).
Updated June 2004
From 1998 to 2000 the tax credit program raised roughly $32 million for more than 30 scholarship organizations, funding 19,000 scholarships. That figure continues to rise. The state Department of Revenue estimates that $28 million was raised in 2002 and the Cato Institute figures that by 2015, $58 million per year will be generated, underwriting at least 35,000 scholarships. STOs make their own rules and determine the size of each scholarship. Scholarships range from $600 to $3,389, with the average being $856. The average annual tuition fee at Arizona private schools is $2,700 for elementary schools and $5,100 for secondary schools.
Parents cannot deduct their own child’s tuition to a private school but through the Family Aid Fund of the Arizona School Choice Trust, and a limited number of other STOs, parents can find sponsors, such as grandparents, friends and relatives who can designate their tax credit for a specific child.
Low-income families (the majority of scholarship recipients) can apply to particular schools or STOs to receive a scholarship at the school of their choice. Most need-based scholarships are awarded on a first-come, first-served basis. Due to the popularity of this program, most STOs have waiting lists because they cannot meet the demand to provide scholarships for all those who apply.
What Qualifies as a Contribution to a Public School?
Under the Tuition Tax Credit Program, taxpayers can deduct contributions to a public school character education program or extracurricular activity. Fees that a parent might pay for their own child’s band uniforms, scientific laboratory equipment or materials, or fees paid to participate in a sports or music program also qualify for the tax credit.
Why is The Tuition Tax Credit Program for Private Schools Controversial?
Because most private schools in Arizona have a religious affiliation, a good portion of the tax income raised for this program goes to religious schools. Since its inception, the program has been challenged in the courts, but in 1999 the Arizona Supreme Court upheld its constitutionality.
Additional Resources
Check these articles on www.greatschools.net:
School Choice in Arizona: An Overview of Your Options
Open Enrollment: Beyond Your Neighborhood School
Choosing a Charter School in the Phoenix Metropolitan Area
Getting the Best Education for Your Child in the Phoenix Metropolitan Area
Nine Key Steps to Choosing a School in the Phoenix Metropolitan Area
They’ve Got Our Attention: Notable Schools in the Phoenix Metropolitan Area
School Tax Credits
Check this PDF file from the Arizona Department of Revenue for more information on school tuition tax credits and for a list of Scholarship Tuition Organizations in Arizona.
