Landmark Tax Credit Scholarship Program Upheld by Alabama Supreme Court

State & Local Tax Alert: Alabama Edition

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On March 2 in an 8-1 decision, the Alabama Supreme Court upheld the constitutionality of the Alabama Accountability Act of 2013 (the “Act”) in Magee et al. v. Boyd et al. The massive 222-page opinion affirmed in part, but largely reversed and remanded the Montgomery County Circuit Court’s May 28, 2014, ruling, which had struck down the Act as violating several provisions of the Alabama Constitution. The plaintiffs had until Monday night, March 16, to apply to the Supreme Court for rehearing. Because no application was filed within that time, the decision is now final.

The case centered on several procedural issues, as well as several issues regarding the improper use of state tax revenues. On procedural grounds, the plaintiffs argued that the Act violated several sections of the Alabama Constitution:

  1. the single-subject rule set forth in Sections 45 and 71;
  2. the original-purpose doctrine in Section 61; and
  3. the three-readings requirement set forth in Section 63.

The plaintiffs also argued that the Act:

  1. was a prohibited appropriation of state funds to non-state entities;
  2. was a prohibited use of income tax revenue;
  3. created prohibited new debt; and
  4. violated the doctrine of separation of church and state.

After addressing several procedural issues related to whether subsequent acts of the Legislature and the political question doctrine rendered the plaintiffs’ arguments moot, the Court found that the Legislature did not violate any of the above-cited sections of the Alabama Constitution. First, the Court held that the original-purpose doctrine of Section 61 is directed at the introduction of matter that is not germane to the general purpose of the legislation. The Court held that the substitute version of the Act, which was introduced in conference committee, did not violate the original-purpose doctrine because the provisions related to the tax credit programs, to provide for state accountability for students in failing schools, were related to the Act’s general purpose—education reform and accountability. Likewise, the Court held that the passage of the Act did not violate the three-readings requirement because the substitute bill was germane to and not inconsistent with the general purpose of the original bill, and the original bill had been read on three different days in each house. Finally, the Court held that the Act did not violate the single-subject rule because the Act had one broad subject—education reform and accountability. While the parties disagreed as to the effect certain parts of the Act would have on that subject, the Court held that the single-subject rule should not be used to resolve that disagreement.

The Court next addressed whether the Act improperly appropriated public funds to charitable or educational institutions not under the control of the state. Finding that tax credits, as the term is generally understood, are not “appropriations” within the meaning of Section 73 of the Alabama Constitution, the Court rejected that argument. Thus, the Act and the tax credit programs it created were not improper uses of public funds. The Court also held that the tax credit programs created by the Act did not violate the Alabama Constitution’s requirement that all income tax revenues are to be deposited into the Education Trust Fund, because the tax-creditable donations made to scholarship granting organizations under the Act are never paid over to or collected by the State as income tax revenue. Regarding whether the refundable parent/guardian tax credits under the Act created prohibited new public debt, the Court held that no new debt was created because refunds were contingent upon the taxpayer owing less in tax than the amount of the credit, and refunds were determined annually and paid from the amount of sales tax revenue necessary to cover the income tax credits and associated refunds for the taxable year.

Finally, even though the trial court declined to rule on whether the Act violated the doctrine of separation of church and state, the Court chose to address this issue for the sake of judicial efficiency by holding that the Act as a whole has a secular purpose, i.e., education reform and accountability. The fact that funds may ultimately flow in part to religious schools is a result of a private decision by a parent or a scholarship granting organization, not the state. There was simply no evidence, the Court concluded, that the Legislature, in authorizing the tax credits, deliberately skewed incentives towards religious schools.

While the Court did affirm the trial court’s decision to deny a motion by some scholarship parents to intervene in the case, the Court reversed all other trial court holdings, unconditionally affirming the constitutionality of the Act. This landmark ruling was welcomed by many parents and students across the state who were concerned that the tax credit programs—and the resulting scholarships to thousands of low-income children—would disappear after the trial court’s decision.

Lesley Searcy, Executive Director of Alabama’s largest scholarship granting organization, the Alabama Opportunity Scholarship Fund (AOSF), stated that “AOSF stands with its 2,800 scholarship recipients in saying how pleased we are with the Court’s decision. The program has been a godsend for our scholarship students and their families all across Alabama, and after months of waiting, parents no longer have to worry about the future of their child’s scholarship. It also gives clarity to supporters who can make their donation with confidence that they will receive their tax credit.”

For further information regarding how to donate to this worthy cause, please visit the Alabama Opportunity Scholarship Fund website or email Lesley Searcy at

Note: The authors’ firm served as amicus counsel in this case on behalf of the President Pro Tem of the Alabama Senate and the Speaker of the House of Representatives, who were and are major proponents of the Act.