U.S. Supreme Court Rules Taxpayers Lacked Standing to Challenge Alleged Tax Subsidy for Religious Schools

On April 4, 2011, the U.S. Supreme Court ruled that Arizona taxpayers lacked standing to challenge Arizona tax credits under the Establishment Clause.  In Arizona Christian School Tuition Organization v. Winn, -- U.S. --, Nos. 09-987, 09-991, 2011 WL 1225707 (2011), taxpayers filed a lawsuit attempting to challenge Arizona's tax credit for contributions to school tuition organizations (STOs), which used the contributions to provide scholarships to students attending private schools, many of which were religious.  The taxpayers alleged that the STO tax credit constituted an impermissible use of taxes to support or sponsor religion, in violation of Establishment Clause principles under the First and Fourteenth Amendments of the U.S. Constitution.

Departing from past cases, the Supreme Court held that taxpayers do not have standing to challenge tax credits (as opposed to direct tax expenditures).  Previously, courts have generally allowed taxpayers to challenge government spending in cases involving violations of the Establishment Clause, under the theory that the taxpayers suffer an injury in such cases.  The same rationale was applied in cases involving tax credits or subsidies.  However, the court held in Arizona Christian STO that the injury to the taxpayer is too remote to afford judicial relief in cases involving tax subsidies, reasoning that when a government declines to impose a tax, its budget does not necessarily suffer and the taxpayer-plaintiff's tax bill is not necessarily increased as a result of the subsidy.  Thus, taxpayers do not have a sufficiently direct and substantial injury to challenge tax credits or subsidies under the Establishment Clause.