School Tuition Organizations

What is a School Tuition Organization (STO)?


Donating to a School Tuition Organization allows you to receive a tax credit for donations that provide scholarships to private school students. The State of Arizona rewards charitable giving to an STO with a dollar-for dollar state tax credit because organizations like Greater Arizona increase the accessibility to high-quality education by providing private school scholarships to low income, disabled, and displaced Arizona K-12 Students. At Greater Arizona we specialize in providing scholarships to deserving students while simultaneously ensuring that our donors receive the full benefits of Arizona's generous state tax credits.

Legislative Background


In 1998 Arizona established the first tax credit for private education in the country. The original tax credit offered a $500 reimbursement for individuals’ donations ($1,000 if filing jointly) to an organization from federal taxation under section 501(c)(3) of the internal revenue code that disbursed at least 90% of that donation out to students at a qualifying Arizona private school. A qualifying school is defined under ARS 43-1601 as “a preschool that offers services to students with disabilities, nongovernmental primary school or secondary school that is located in this state and that does not discriminate on the basis of race, color, disability, familial status or national origin and that requires all teaching staff and personnel that have unsupervised contact with students to be fingerprinted.” These non-profits were the first Arizona STOs.

The “Original” scholarship program has grown steadily from 15,081 scholarships provided in Calendar Year 2000, to 31,578 scholarships in Fiscal Year 2016. This growth has been supplemented by the numerous expansions of the law, especially the 2006 low-income corporate income tax credit program. Since 2006 Arizona corporations have been allowed to claim tax credits against any donations to STOs, provided those STOs use the donation for scholarships to students with family incomes less than 185% of the standard for Federal free and reduced lunches (342.25% of the federal poverty level). The fiscal year 2017 corporate cap will be $74.3 million and rise by twenty percent each year after that.

The tax credits were further expanded in 2009 to allow corporations to provide donations to STOs for scholarships for disabled and foster care children. The 2009 “Lexie’s Law” scholarships are capped at a total of $5 million per year. The corporate tax credit program is popular, like the low income corporate credits, in fiscal year 2016 the disabled and displaced scholarships reached the cap on credit-eligible donations.

The latest expansion came in 2012 when the Arizona State Legislature passed the “Switcher/Overflow” tax credit which allowed STOs to take in additional tax credit-eligible donations for private school students who have switched out of public schools. In 2016, once individuals donated $545 or married couples donated $1090 towards “Original” scholarships they could claim credits of up to $542/$1083 for additional donations to STOs. All told, Arizona STOs took in $157,556,928 in tax credit eligible donations for fiscal year 2016 and provided 73,566 scholarships worth $130,818,510.

© Gage Skidmore

Judicial Backing


The Arizona School Tuition Organization program has been endorsed by the highest court in the land. Donors to Greater Arizona STO can rest assured that the Supreme Court of the United States has ruled that providing tax credits for private school scholarship donations is constitutional.

In Arizona Christian School Tuition Organization v. Winn, 563 US 125 (2011) a group of Arizona taxpayers who challenged the STO tax credit as a violation of Establishment Clause principles under the First and Fourteenth Amendments. Writing for the majority, Justice Kennedy found that “Respondents suggest that their status as Arizona taxpayers provides them with standing to challenge the STO tax credit. Absent special circumstances, however, standing cannot be based on a plaintiff’s mere status as a taxpayer. This Court has rejected the general proposition that an individual who has paid taxes has a “continuing, legally cognizable interest in ensuring that those funds are not used by the Government in a way that violates the Constitution.”

The respondents sought standing under Flast v. Cohen, 392 U. S. 83. But could not demonstrate the required “logical link between the plaintiff’s taxpayer status “and the type of legislative enactment attacked” and a “nexus between the plaintiff’s taxpayer status and the precise nature of the constitutional infringement alleged."

Arizona Christian School Tuition Organization v. Winn affirmed the principle that tax credits given in support of a religious establishment do not violate the establishment clause. The majority found that government tax expenditures do compel any individual taxpayer to support a private school in a manner that would reasonably cause distress to their conscience. Kennedy wrote,

“It is easy to see that tax credits and governmental expenditures can have similar economic consequences, at least for beneficiaries whose tax liability is sufficiently large to take full advantage of the credit. Yet tax credits and governmental expenditures do not both implicate individual taxpayers in sectarian activities. A dissenter whose tax dollars are “extracted and spent” knows that he has in some small measure been made to contribute to an establishment in violation of conscience. When the government declines to impose a tax, by contrast, there is no such connection between dissenting taxpayer and alleged establishment.”

Not only do tax credits not constitute direct taxpayer support of private schools, Kennedy found that even monetary losses by the State of Arizona could not be proven. Because the Arizona STO program is primarily intended to benefit low-income students who would otherwise be unable to attend private schools, STO tax credits may reduce the financial burden on the Arizona public school system.

Kennedy noted, “By helping students obtain scholarships to private schools, both religious and secular, the STO program might relieve the burden placed on Arizona’s public schools. The result could be an immediate and permanent cost savings for the State.”

Finally, the court found that the respondents lacked evidence that STO tax credits have impacted their tax obligations as: “A finding of causation would depend on the additional determination that any tax increase would be traceable to the STO tax credits, as distinct from other governmental expenditures or other tax benefits. Respondents have not established that an injunction against application of the STO tax credit would prompt Arizona legislators to pass along the supposed increased revenue in the form of tax reductions.”

The Arizona School Tuition Organization program has been endorsed by the highest court in the land. Donors to Greater Arizona STO can rest assured that the Supreme Court of the United States has ruled that providing tax credits for private school scholarship donations is constitutional.

In Arizona Christian School Tuition Organization v. Winn, 563 US 125 (2011) a group of Arizona taxpayers who challenged the STO tax credit as a violation of Establishment Clause principles under the First and Fourteenth Amendments. Writing for the majority, Justice Kennedy found that “Respondents suggest that their status as Arizona taxpayers provides them with standing to challenge the STO tax credit. Absent special circumstances, however, standing cannot be based on a plaintiff’s mere status as a taxpayer. This Court has rejected the general proposition that an individual who has paid taxes has a “continuing, legally cognizable interest in ensuring that those funds are not used by the Government in a way that violates the Constitution.”

The respondents sought standing under Flast v. Cohen, 392 U. S. 83. But could not demonstrate the required “logical link between the plaintiff’s taxpayer status “and the type of legislative enactment attacked” and a “nexus between the plaintiff’s taxpayer status and the precise nature of the constitutional infringement alleged."

Arizona Christian School Tuition Organization v. Winn affirmed the principle that tax credits given in support of a religious establishment do not violate the establishment clause. The majority found that government tax expenditures do compel any individual taxpayer to support a private school in a manner that would reasonably cause distress to their conscience. Kennedy wrote,

“It is easy to see that tax credits and governmental expenditures can have similar economic consequences, at least for beneficiaries whose tax liability is sufficiently large to take full advantage of the credit. Yet tax credits and governmental expenditures do not both implicate individual taxpayers in sectarian activities. A dissenter whose tax dollars are “extracted and spent” knows that he has in some small measure been made to contribute to an establishment in violation of conscience. When the government declines to impose a tax, by contrast, there is no such connection between dissenting taxpayer and alleged establishment.”

Not only do tax credits not constitute direct taxpayer support of private schools, Kennedy found that even monetary losses by the State of Arizona could not be proven. Because the Arizona STO program is primarily intended to benefit low-income students who would otherwise be unable to attend private schools, STO tax credits may reduce the financial burden on the Arizona public school system.

Kennedy noted, “By helping students obtain scholarships to private schools, both religious and secular, the STO program might relieve the burden placed on Arizona’s public schools. The result could be an immediate and permanent cost savings for the State.”

Finally, the court found that the respondents lacked evidence that STO tax credits have impacted their tax obligations as: “A finding of causation would depend on the additional determination that any tax increase would be traceable to the STO tax credits, as distinct from other governmental expenditures or other tax benefits. Respondents have not established that an injunction against application of the STO tax credit would prompt Arizona legislators to pass along the supposed increased revenue in the form of tax reductions.”

Because the challengers of the STO could not:

  1. Demonstrate that STO tax credits constituted direct government support of a religious establishment,

  2. Demonstrate the STO tax credits negatively impacted the budget of the state of Arizona or,

  3. Demonstrate the abolitions of the STO tax credits would result in a corresponding lowering of taxes

The respondents in Arizona Christian School Tuition Organization v. Winn, lacked standing to bring suit in federal court.

The decision of the Ninth Circuit Court of Appeals was reversed and since the decision in April of 2011, Arizona taxpayers have been able to rest assured that their support of Arizona private school students is 100% constitutional. With such a decisive ruling by the Supreme Court, the door has been effectively shut on federal intervention in the STO program. As long as the STO tax program maintains the broad support it currently maintains among the people of Arizona and the state legislature, our mandate to aid the education of Arizona private school students shall endure.