A Flathead District Court judge on Friday issued a preliminary injunction that blocks the Montana Department of Revenue from enforcing a rule that would have excluded religious schools from a program providing tax credits for donations to private school scholarships.

Last year, the state Legislature passed a law creating the tax credit. Individual donors can receive up to $150 in tax credits, and the program is capped at $3 million statewide.

Tasked with implementing the new law, the Department of Revenue issued a rule in December that made donations to scholarships for religious schools ineligible under the program.

Shortly after the rule’s implementation, Kendra Espinoza and Jeri Anderson of Kalispell, along with Jaime Schaefer of Bigfork, filed the legal challenge. All three are mothers of children attending Stillwater Christian School, and are being represented by the Arlington, Virginia-based Institute for Justice.

“The main issue in this case was whether a tax credit is public money, whether a state giving someone a tax credit in exchange for their donation transforms that tax credit into public money,” said Erica Smith, an Institute for Justice attorney representing the plaintiffs in the case. “There’s nothing different about giving a tax credit to somebody in exchange for their donation to a scholarship organization than the charitable deduction you would get from donating to any charity.”

The state 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.

Before the lawsuit, Attorney General Tim Fox’s office submitted comments questioning the constitutionality of the rule. John Barnes, a spokesman for the office, said Friday it was not involved with the lawsuit, which is being handled by the revenue department’s own legal counsel.

In an email statement, Department of Revenue spokeswoman Molly Petersen said the state is still reviewing the District Court’s order.

“At this stage in our review, the department is considering its options,” the statement reads. “Articles V and X of the Constitution prohibit direct and indirect payments or appropriations to religious or sectarian schools.”

Flathead District Judge David M. Ortley issued the order, and in granting the injunction wrote that the plaintiffs had proven that they are likely to succeed in the lawsuit.

“Rule 1 interjects qualifiers into the definition of ‘qualified education provider’ that were not included by the Legislature” in the law, Ortley wrote. “Where an administrative rule conflicts with or is inconsistent with a statute, the statute prevails.”

He also cited a precedent in which the U.S. Supreme Court ruled that a similar law in Arizona did not constitute a government expenditure to a religious organization.

Petersen said Friday the department has not yet been officially served the order, at which point it will have 42 days to file a response. 

Reporter Sam Wilson can be reached at 758-4407 or by email at swilson@dailyinterlake.com.