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Arizona tax law allows for residents to receive a tax credit of up to $500 for contributing to a private school scholarship fund, and this week the U.S. Supreme Court rejected a challenge to the law.

The Arizona law was challenged on the grounds that it violates the constitutional separation of church and state. Citizens can't normally challenge government policies based on their status as taxpayers, but in 1968 the Supreme Court ruled that an exception could be made when the tax dollars are used either directly or indirectly to support religion.

Those who filed the suit believe receiving tax breaks for donating money to school tuition organizations who then give the money to private schools, including those associated with religious organizations, qualifies under the 1968 ruling, but the majority of justices did not agree. The majority decided the challenge didn't meet the strict rules that limit litigation based on claims of injuries by state programs. Justice Elena Kagan, writing for the four dissenters, said the Court's decision damages one of the defining constitutional commitments of the U.S.

The majority of justices interpreted the 1968 decision by drawing the difference between a tax credit, which is what the Arizona tax law call for, and a direct government expenditure to benefit or support religion. Writing for the majority, Justice Anthony Kennedy said the Arizona law definitely falls into the former.

Before coming to the Supreme Court, the suit was deemed to have legal merit by the U.S. Court of Appeals for the 9th District. The Court of Appeals cited the First Amendment, which guarantees that the government will "make no law respecting an establishment of religion," in its decision. The First Amendment is widely known as the principle of "separation of church and state."

While separation of church and state is a legitimate concern and one which the litigants did cite in their complaint, there's also a more pragmatic reason for the challenge to the Arizona tax law. According to Justice Kagan, since the inception of the law 13 years ago, the credit has diverted about $350 million away from Arizona in tax revenue.

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