Opinion ID: 3064621
Heading Depth: 2
Heading Rank: 1

Heading: Taxpayer Standing

Text: [1] Plaintiffs’ only allegation of injury from the allegedly unconstitutional operation of Section 1089 arises from their status as Arizona taxpayers. It is well established that individ- 6 We use the term “defendants” to refer to the Director of Arizona’s Department of Revenue and the intervening defendants ACSTO, ASCT, Dennard and Moscoso. We use the term “defendant-intervenors” when referring only to the intervening defendants. At oral argument, plaintiffs stipulated that they challenge only those STOs that restrict scholarships to religious schools, and thus we note that ASCT is not being directly challenged. WINN v. ARIZONA CHRISTIAN SCHOOL 4597 uals do not generally have standing to challenge governmental spending solely because they are taxpayers, because “it is a complete fiction to argue that an unconstitutional federal expenditure causes an individual federal taxpayer any measurable economic harm.” Hein v. Freedom From Religion Found., Inc., 127 S. Ct. 2553, 2559 (2007) (plurality opinion). This rule applies with equal force to taxpayer suits challenging an allegedly unconstitutional state action and those challenging federal action. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342-49 (2006); Arakaki v. Lingle, 477 F.3d 1048, 1062-63 (9th Cir. 2007). The Supreme Court, however, has long recognized “a narrow exception to the general constitutional prohibition against taxpayer standing” when a plaintiff contends that a use of funds violates the Establishment Clause. Hein, 127 S. Ct. at 2564; see Flast v. Cohen, 392 U.S. 83, 88 (1968). Because plaintiffs have alleged that the state has used its taxing and spending power to advance religion in violation of the Establishment Clause, we hold that they have standing under Article III to challenge the application of Section 1089. [2] As the Supreme Court recently reaffirmed, the Flast exception to the general bar against taxpayer standing is rooted “in the history of the Establishment Clause” and is designed to prevent “ ‘the specific evils feared by [its drafters] that the taxing and spending power would be used to favor one religion over another or to support religion in general.’ ” DaimlerChrysler, 547 U.S. at 348 (alterations in original) (quoting Flast, 392 U.S. at 103). The exception recognizes that the “injury” alleged in Establishment Clause challenges to governmental spending arises not from the effect of the challenged program on the plaintiffs’ own tax burdens, but from “the very ‘extract[ion] and spend[ing]’ of ‘tax money’ in aid of religion.” Id. (alterations in original) (quoting Flast, 392 U.S. at 106). Therefore, to satisfy the Flast test for taxpayer standing, plaintiffs need not show that an injunction against a particular taxing or spending program would cause “lawmakers . . . [to] dispose of the savings in a way that 4598 WINN v. ARIZONA CHRISTIAN SCHOOL would benefit the taxpayer-plaintiffs personally.” Id. at 34849. Instead, they need only show that the program challenged involves “a sufficient nexus between the taxpayer’s standing as a taxpayer and the . . . [legislative] exercise of taxing and spending power.” Bowen v. Kendrick, 487 U.S. 589, 620 (1988). [3] Section 1089 gives Arizona taxpayers a tax credit for amounts they donate to STOs, up to the statutory cap of $500 for individuals or $1,000 for married couples filing jointly or the taxpayers’ entire state tax liability. See Ariz. Rev. Stat. Ann. § 43-1089(A), (C). Tax credits are deducted after taxpayers’ tax liability has been calculated, thereby giving taxpayers dollar-for-dollar “credits” against their state taxes for sums paid to STOs. Tax credits therefore operate differently from tax deductions; whereas tax deductions allow taxpayers only to reduce their income subject to taxation, tax credits allow individuals to make payments to a third party in satisfaction of their assessed tax burden. As the Supreme Court explained, “[i]n effect, § 43-1089 gives Arizona taxpayers an election” to direct a portion of the money they owe the state to either a STO or to the Arizona Department of Revenue. Hibbs, 542 U.S. at 95. Accordingly, “[a]s long as donors do not give STOs more than their total tax liability, their . . . contributions are costless.” Id. Tax credits are therefore a powerful legislative device for directing money to private organizations.7 7 Section 1089’s success is evident from the year-over-year increases in contributions since the program took effect. Plaintiffs allege that taxpayers claimed $1.8 million in credits for contributions to STOs in 1998, when the program was under legal challenge that made it unclear whether donors would receive the credit, and over $5.9 million in 1999. According to data on the Arizona Department of Revenue’s public website, these contributions appear to have further increased since the filing of plaintiffs’ complaint, with taxpayers claiming credits worth over $54 million in 2007. See Arizona Department of Revenue Office of Economic Research & Analysis, Individual Income Tax Credit for Donations to Private School Tuition Organizations, 2007, at 3 (April 1, 2008), available at http://www.revenue.state.az.us/ResearchStats/private_schl_credit_report_ 2007.pdf (last visited April 13, 2009). WINN v. ARIZONA CHRISTIAN SCHOOL 4599 Defendant-intervenors argue that plaintiffs do not have standing to challenge Section 1089 even under the Flast exception, because the money directed by taxpayers to STOs under the tax credit program does not pass through the state treasury and therefore the program cannot be characterized as involving any “expenditure” of public funds.8 The Supreme Court has recognized, however, that state tax policies such as tax deductions, tax exemptions and tax credits are means of “channeling . . . [state] assistance” to private organizations, which can have “an economic effect comparable to that of aid given directly” to the organization. Mueller v. Allen, 463 U.S. 388, 399 (1983). The Court has therefore refused to make artificial distinctions between direct grants to religious organizations and tax programs that confer special benefits on religious organizations, particularly tax credits such as the one challenged here. As the Court noted, “for purposes of determining whether such aid has the effect of advancing religion,” it makes no difference whether the qualifying individual “receives an actual cash payment . . . [or] is allowed to reduce . . . the sum he would otherwise be obliged to pay over to the state.” Comm. for Pub. Educ. & Religious Liberty v. Nyquist, 413 U.S. 756, 790-91 (1973). In either case, “the money involved represents a charge made upon the state for the purpose of religious education.” Id. at 791 (internal quotation marks omitted); see also Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221, 236 (1987) (Scalia, J., dissenting) (“Our opinions have long recognized — in First Amendment contexts as elsewhere — the reality that tax exemptions, cred- 8 ACSTO’s argument that our reasoning is bound by Kotterman’s conclusion that the tax credit does not constitute an “appropriation of public money” within the meaning of the Article II, Section 12 and Article IX, Section 10 of the Arizona constitution, see 972 P.2d at 617-21, is meritless. The Arizona Supreme Court’s holding has no bearing on our analysis of plaintiffs’ standing in federal court, which turns on the requirements derived from Article III of the U.S. Constitution. Cf. Hein, 127 S. Ct. at 2562 (“One of the controlling elements in the definition of a case or controversy under Article III is standing.”) (internal quotation marks and alterations omitted). 4600 WINN v. ARIZONA CHRISTIAN SCHOOL its, and deductions are a form of subsidy that is administered through the tax system.”) (internal quotation marks omitted). In effect, Section 1089 works the same as if the state had given each taxpayer a $500 check that can only be endorsed over to a STO or returned to the state. Because Section 1089 does not allow taxpayers to keep the money under any circumstance — and because it directs how the money will be spent if it is not surrendered to the state — we reject the suggestion that this money is not publicly subsidized simply because it does not pass through the treasury. Nor does Section 1089 lack “a sufficient nexus between the taxpayer’s standing as a taxpayer and the . . . [legislative] exercise of taxing and spending power” just because the Arizona legislature does not transfer money to STOs or religious schools directly. See Bowen, 487 U.S. at 620. The Arizona legislature promulgated Section 1089 under the power conferred by Article IX of the Arizona constitution, a provision that is equivalent to the U.S. Constitution’s taxing and spending clause. See Ariz. Const. art. IX, § 3. By giving taxpayers a dollar-for-dollar credit for contributions to STOs and then requiring STOs to “allocate[ ] at least ninety percent of . . . [their] annual revenue for educational scholarships or tuition grants to children,” the state legislature has provided only two ways for this money to be spent: taxpayers will either give the dollar to the state, or that dollar (or at least 90 percent of it, after allowable STO administrative expenses) will end up in scholarships for private school tuition. See Ariz. Rev. Stat. Ann. § 1089(G)(3) (2005). [4] By structuring the program as a dollar-for-dollar tax credit, the Arizona legislature has effectively created a grant program whereby the state legislature’s funding of STOs is mediated through Arizona taxpayers. The Court has recognized that taxpayer standing exists even when a legislature does not directly allocate funds to religious organizations, but instead mediates the funds through another agency. See Bowen, 487 U.S. at 618-20. Although the Arizona legislature WINN v. ARIZONA CHRISTIAN SCHOOL 4601 has chosen an alternative method of allocating the funds that Section 1089 makes available to STOs, the Court clarified in Bowen that it was the legislature’s exercise of its taxing and spending power, rather than the actions of the agency, that permitted taxpayers to raise an Establishment Clause challenge. See id. at 619 (“We do not think . . . that appellees’ claim that . . . [appropriated] funds are being improperly used by individual grantees is any less a challenge to congressional taxing and spending power simply because the funding authorized by Congress has flowed through and been administered by the Secretary [of Health and Human Services].”). Accordingly, under Bowen, taxpayers have standing to challenge a legislature’s exercise of its taxing and spending power even when the legislature does not use that power to directly fund religious organizations, but instead uses the power to authorize third parties to fund such organizations. [5] Consistent with these principles, the Supreme Court has repeatedly decided Establishment Clause challenges brought by state taxpayers against state tax credit, tax deduction and tax exemption policies, without ever suggesting that such taxpayers lacked Article III standing. See, e.g., Mueller, 463 U.S. at 390 (state income tax deduction for school expenses that could be claimed for expenses at religious schools); Nyquist, 413 U.S. at 789-90 (hybrid state tax deduction-tax credit program for tuition paid to private schools); Hunt v. McNair, 413 U.S. 734, 737-38 (1973) (state tax exemption for state-issued revenue bonds that went in part to religious schools); Walz v. Tax Comm’n, 397 U.S. 664, 666 (1970) (state property tax exemption for religious nonprofit organizations). The Supreme Court has also repeatedly decided challenges brought by state taxpayers to indirect aid programs — where the ultimate decision to confer aid rested with a private individual and not the government — and again never suggested that taxpayers lacked standing. See, e.g., Zelman, 536 U.S. at 645 (state tuition grants to parents for public or private schools); Nyquist, 413 U.S. at 781 (state tuition grants to parents for private schools). Although we acknowledge that “the 4602 WINN v. ARIZONA CHRISTIAN SCHOOL [c]ourt’s exercise of jurisdiction . . . is not precedent for the existence of jurisdiction,” Doe v. Madison Sch. Dist. No. 321, 177 F.3d 789, 795 (9th Cir. 1999) (en banc) (internal quotation marks omitted; alteration in original), we also note that the Court has rejected the suggestion that its consistent past practice of exercising jurisdiction amounts to “mere ‘sub silentio holdings’ ” that “command no respect,” Hibbs, 542 U.S. at 94. We therefore hold that plaintiffs have standing as taxpayers to challenge Section 1089 for allegedly violating the Establishment Clause.