Weekly BNA Insights: Some Private School ‘Donors’ Use Tax Code to Turn Profit

From the 11/25/16 edition of the Weekly State Tax Report:

On the campaign trail, President-elect Donald Trump said that he would encourage states to provide more public funding for private schools through the creation of a $20 billion federal grant program. Directing public dollars to private schools is a divisive education policy course for a host of reasons, but funneling additional dollars to private schools could also enlarge a tax policy problem that has received little attention thus far: upper-income taxpayers exploiting generous private school tax incentives to turn a profit at the public's expense.

One of the most common ways that states provide public funding to private schools is through school voucher programs that pay parents to send their children to private schools. Increasingly, however, states have opted to pursue this objective through their tax codes rather than through traditional appropriations. Tax credits and deductions, often referred to as “neovouchers,” can offset the cost of sending a child to a private school or facilitate the granting of private school scholarships. Twenty states provide more than $1 billion in public funding for private and religious schools every year through these types of tax provisions.

In eight states, parents receive a tax cut based on the amount of private school tuition and/or other related expenses they faced throughout the year. Minnesota offers both a tax credit and a deduction for these expenses while three states (Indiana, Louisiana and Wisconsin) offer only a deduction and four states (Alabama, Illinois, Iowa and South Carolina) offer only a credit.

Carl Davis, research director at the Institute on Taxation and Economic Policy, discusses how some taxpayers game the system in order to make a profit from charitable deductions in this week’s BNA Insights article, available here (subscription required). Or sign up for a free trial to the Weekly State Tax Report.

The Future of Being Present: Will U.S. Supreme Court Hear Current Kill-‘Quill’ Challenges?

By now, almost every online retailer is aware of Justice Kennedy's open invitation to state tax authorities to bring forward to the U.S. Supreme Court a case that could overturn the Quill/Bellas Hessphysical presence standard. Retailers are also likely aware of multiple states' eager acceptance of Justice Kennedy's invitation, crafting laws that directly contradict the Quill precedent and filing suits against large online retailers that have not complied with these laws.With the filing of these lawsuits, it seems as though the machinery has been put in motion for a case with the potential to abolish the physical presence standard to be heard by the U.S. Supreme Court. With such a large and significant change—reversing course on a nearly 50-year-old precedent and immeasurably increasing online retailers' sales tax collection obligations—potentially looming, online retailers must consider how these controversies will play out in order to plan their compliance practices in the near and long terms. In considering the possibility of a reversal of U.S. Supreme Court precedent, however, the first thing to consider is whether the U.S. Supreme Court will decide to hear the controversy in the first place.

Brian Howsare, manager at Grant Thornton, discusses the likelihood of Supreme Court review in a second BNA Insights article this week, available here (subscription required). Or sign up for a free trial to the Weekly State Tax Report.

Compiled by Chreasea Dickerson