A Flathead District Court Judge last month struck down a rule by the Montana Department of Revenue that restricted a state tax credit from being applied to donations that support scholarships for religious schools.

Mike Kadas, director of Montana’s Department of Revenue, said Monday that the state plans to appeal the ruling to the Montana Supreme Court.

In her May 26 order, Judge Heidi Ulbricht ruled in favor of three Kalispell-area parents with children enrolled at Stillwater Christian School, finding that the state erred in its implementation of a 2015 law establishing the tax-credit program.

Kalispell residents Kendra Espinoza and Jeri Ellen Anderson, along with Bigfork resident Jaime Schaefer, filed a lawsuit in December 2015 alleging that the state failed to uphold the intent of legislation passed earlier that year. Senate Bill 410 created a tax credit for up to $150 per year in donations to organizations that fund student scholarships for private schools.

In its rule-making to implement the program, the Department of Revenue specified that only donations to support non-religious, private-school scholarships were eligible for the tax credits. The department contended that allowing those tax credits to incentivize donations to religious schools would violate the Montana Constitution’s prohibitions on funding religious organizations.

However, Ulbricht cited previous rulings that define an “appropriation” as money that is distributed directly from state funds.

“Both articles of the Montana Constitution prohibit appropriations that aid religious schools but they are silent concerning tax credits,” she wrote, referring to articles V and X in the state constitution. “... The Montana Supreme Court, citing a long line of Montana cases, has opined that ‘appropriation’ refers only to the authority given to the Legislature to expend money from the state treasury.”

Ulbricht’s decision also noted that after the department created its rules to implement the 2015 law, an official poll of state legislators found that majorities in both the House and Senate believed the rules violated the lawmakers’ intent when they passed the bill.

The three plaintiffs were represented by the Institute for Justice, a libertarian, nonprofit law firm based in Arlington, Virginia.

Espinoza said in an interview Monday that private scholarships cover about 30 to 35 percent of the tuition for her two daughters to attend Stillwater Christian School in Kalispell.

“Originally, I had gotten involved [in the lawsuit] because I wouldn’t have been able to continue to keep my girls at Stillwater School without assistance from scholarships, and I know that’s the case with many families there. The assistance means a lot,” she said. “Knowing that we got justice on our end, that this is a fair ruling on the local level for now, I think it’s going to make a big difference if the department does appeal and take it to the next level.”

In a press release, the Institute for Justice hailed the ruling as “major victory for Big Sky families.”

“The court recognized that it is perfectly constitutional for the Legislature to create this program for families who wish to send their children to any private school, not just non-religious schools,” Dick Komer, a senior attorney for the institute, stated.

The department’s legal team provided the state’s defense in the case, after Attorney General Tim Fox previously called the state’s interpretation of the 2015 law legally “indefensible.”

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