Stillwater parents sue over tax-credit rule

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Three mothers of children attending Stillwater Christian School are challenging the Montana Department of Revenue’s exclusion of religious schools from a program that will provide scholarships to students attending private schools.

The legal challenge — filed Wednesday in Flathead District Court in Kalispell — means the Montana Department of Justice will be forced to defend a rule that it previously called indefensible.

The state Legislature this year passed a new law providing tax credits for individual donations up to $150 that support private school scholarships or to innovative public school programs. The tax-credit program is capped at $3 million for the first year.

The state Revenue Department is tasked with rule-making to implement the law, and on Wednesday finalized a rule that will exclude religious schools from those private schools to which the tax credit applies. The department has maintained that applying the tax credits to donations for religious institutions would violate the Montana Constitution’s prohibition on appropriating funding to religious institutions.

Represented by the Arlington, Virginia-based Institute for Justice, Kendra Espinoza and Jeri Anderson of Kalispell and Jaime Schaefer of Bigfork contend that tax credits are not legally classified as appropriations and counter that the department’s rule violates their religious protections under the state and federal constitutions.

“I think they’re taking away my freedom of choice,” Anderson said in an interview Thursday. “I as a parent know what’s best for my child and if I see sending her to Stillwater as the best choice, I should have that as an option. I shouldn’t have that taken away.”

Institute for Justice attorney Erica Smith, who is representing the plaintiffs, said she reached out to multiple religious schools in the state and Stillwater was the first to connect her with families that would be affected by the rule.

A single mother still paying off debts she incurred during a period of unemployment beginning in 2012, Anderson said her daughter is thriving as a preschooler at Stillwater Christian. She said the scholarship amounts to a little over $1,000 per year toward tuition.

“I have nothing against public schools. I attended them myself, [but] I feel it’s a better fit for her,” she said. “It’s a home away from home. She loves her teachers and I know she’s in a safe environment where they’ve got her best interests at heart.”

Molly Petersen, a spokeswoman with the Revenue Department, said the rule was written to comply with the law as passed and the state Constitution.

“It’s not like we are determining constitutionality. Our attorneys read the Constitution and the statute and adopt the rules based on that,” she said.

A public comment period after the new rule was released prompted criticism from state religious organizations while the public school teachers’ union praised the rule.

Many lawmakers contended that the rule failed to grasp the intent of the law, and a poll to gauge that intent found that 88 legislators objected to the department’s interpretation while 51 supported it. Eleven did not return ballots.

Montana Solicitor General Dale Schowengerdt submitted comments while the rule was still in draft form that said a judge would likely decide it is unconstitutional to categorically exclude religious entities from a neutral benefits program without reason.

“The Attorney General believes that it would not be defensible,” Schowengerdt wrote of Montana Attorney General Tim Fox.

But Fox will have to defend the rule in the state lawsuit and another expected to be filed in federal court. The state Department of Justice is the attorney for the state when an agency is sued.

Spokesman John Barnes declined to say how state attorneys will effectively defend the rule after publicly opposing it.

“It’s premature to discuss litigation we haven’t even seen, much less had time to review and analyze,” he said.

Revenue Department officials disputed Schowengerdt’s position in a written response.

“The rule does not exclude religious entities from neutral benefits, but limits the donations based on the language of the Montana Constitution,” department officials wrote.

Smith said she believes she and her clients have ample precedent, including a Montana District Court decision, on the plaintiffs’ side.

“The case law is unanimous that tax credits are not public funds,” she said. “The decision that the Department of Revenue has made is a political decision, not a legal decision.”

Reporter Sam Wilson can be reached at 758-4407 or by email at

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