Incentives Watch: The More You Know, the Less the Scholarship Tax Credit Debate Surprises You

There are certain topics that always seem to lead to heated debates. Religion, politics, taxes, and education often come to the forefront of these discussions. That is why the enactment of scholarship tax credits can be so contentious in both state governments and the news. By combining multiple hot button issues these credits ensure that there is never a dull moment, something that Maryland and South Dakota are coming to realize as they jump into the scholarship tax credit fray. 

Mechanically, scholarship tax credits generally provide taxpayers a credit for making donations to third-party scholarship granting organizations, who then use those donations to award scholarships to students attending private secular or religious schools. 

Maryland S.B. 706, creating a scholarship tax credit, recently passed the Maryland Senate as reported by Kathy Lundy in Bloomberg BNA’s Weekly State Tax Report. This bill represents the latest attempt for enacting a scholarship tax credit in the state, an endeavor that has not been successful in the past. There are currently three scholarship tax credit bills before the Maryland House, including S.B. 706’s companion bill (H.B. 1343), the article points out. 

Whether any of these bills will become law is anyone’s guess, but the odds may be shifting in their favor. Maryland Governor Larry Hogan showed his support for scholarship tax credits in the past, going so far as to back legislation. Now, the primary opposition to these bills may be changing their stance, as noted in The Washington Post. It appears as though legislators from areas with underperforming schools are becoming more open to this legislation, according the article.

South Dakota S.B. 159 was also recently enacted by the state’s legislature. If signed into law, the credit will be available to insurance companies to apply against the state’s insurance premiums tax. Even so, several issues with the bill have been raised. Opponents to the credit in the state’s legislature voiced concerns over funding for public schools, according to the Insurance Journal. However, this opposition was not successful.    

Questions surrounding funding for public schools are not the only questions that have been asked about this credit in South Dakota. The legislation has been passed along to the state Supreme Court by Governor Dennis Daugaard for a determination of its constitutionality, as reported by Mark Wolski in Bloomberg BNA’s Weekly State Tax Report. Gov. Daugaard has requested the court issue an advisory opinion prior to taking action on the bill because of concerns surrounding the separation of church and state, the article points out.

These are just a few examples of recent debates surrounding scholarship tax credits. As more and more states look into expanding educational opportunities for their residents, scholarship tax credits will continue to pop up and the discussion will most likely continue to be heated.  

*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Do Scholarship tax credits violate the separation of church and state?

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