Can an Idaho school district create or run a nonprofit corporation to accept donations and tax-credit gifts for the schools?
Subject
Opinion 86-13: School districts are prohibited from creating or aiding any private corporation, profit or non-profit.
Plain-English summary
Secretary of State Pete Cenarrusa asked whether an Idaho school district could form (or sit on the board of) a nonprofit corporation set up to accept gifts to the public schools, including gifts that qualify for the Idaho income tax credit under Idaho Code § 63-3029A. Attorney General Jim Jones answered no. The Idaho Constitution treats school districts as municipal corporations, and art. 12, § 4 forbids any municipal corporation from becoming a stockholder in or making donations or loans of credit to any company or association. Article 8, § 4 reinforces the same restriction. Because creating or controlling a private nonprofit would amount to the school district aiding a private corporation, that route was off limits.
The opinion offered two work-arounds. Private citizens, including school district trustees acting in their personal capacity, could form their own nonprofit under Idaho's nonprofit corporation chapter to solicit and manage gifts for the schools. The articles of incorporation should state plainly that the school district has no control over or involvement in the foundation. Donations to that independent foundation would still qualify for the § 63-3029A income tax credit. Alternatively, the school district itself could establish a trust fund or designated account inside its existing financial structure to receive and distribute gifts, since money kept under municipal control does not raise the same constitutional concerns about benefiting a private interest.
Currency note
This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Idaho's nonprofit corporation chapter has been replaced by Title 30, Chapter 30 (the Idaho Nonprofit Corporation Act), and the school-foundation tax-credit regime has been moved and reworked since 1986. Anyone setting up an Idaho school foundation today should verify the current foundation-eligibility rules with the Idaho State Tax Commission and the State Department of Education, and confirm the current nonprofit incorporation requirements with the Secretary of State.
What the opinion meant for school districts at the time
For school boards in 1986, the takeaway was that a district could not directly stand up a foundation to channel donations to itself. The constitutional bar against municipal corporations becoming stockholders in or loaning credit to "any" company or association was read as a hard line, even when the only "aid" being offered was paying the board to manage gifts coming back to the schools. Districts that wanted to professionalize their fundraising had to either keep gift money inside a clearly municipal account, or step back and let community members run the foundation independently.
For prospective school foundations, the opinion suggested university-style foundations as a model: a privately controlled nonprofit, separate from the public institution, that collects gifts and disburses them to the school. Trustees who wanted to be involved had to participate strictly in their personal capacity, and the articles of incorporation needed to disclaim any school-district control.
Common questions
Could an Idaho school district sit on the board of a nonprofit it had set up to manage donations?
No. The opinion concluded that under Idaho Constitution art. 12, § 4, a school district could not even create a nonprofit corporation, much less control it through board representation. Article 12, § 4 had previously been applied in School District No. 8 v. Twin Falls Mutual Fire Insurance Co. (1917) to forbid a school district from joining a non-profit mutual fire insurance company, and the AG read that case as squarely on point.
Did this prevent gifts to schools from qualifying for the Idaho income tax credit?
No. The opinion was clear that gifts to a privately formed and controlled nonprofit would still qualify under § 63-3029A. The key was who controlled the receiving entity, not who benefited from it. Donors gave to a private foundation; the foundation, in turn, supported the public schools.
Could a school district set up a special fund of its own to receive donations?
Yes. The opinion approved the alternative of a trust fund or designated account inside the district's existing financial structure. Money "remaining within control of the municipality" did not raise the same constitutional concern, citing language from Idaho Falls Consolidated Hospital v. Bingham County Board of County Commissioners about how municipal control prevents private interests from gaining advantage at taxpayer expense.
Did school district trustees lose their ability to be involved in foundation work?
No, but they had to take off their official hat. The opinion expressly carved out the right of trustees, "acting as private citizens," to help create or operate a separate foundation. The line was that the trustees could not be acting on behalf of the district when doing so.
Background and statutory framework
Idaho's lending-of-credit clauses, art. 8, § 4 and art. 12, § 4, are products of the late 19th-century reaction to municipal subsidies for railroads and other private ventures that left towns holding the bag when those ventures failed. Both provisions are written broadly to bar a municipal corporation from "becoming a stockholder in any joint stock company, corporation or association whatever, or [raising] money for, or [making a] donation or loan its credit to, or in aid of, any such company or association." The Idaho Supreme Court had already extended the rule to school districts in 1917, treating them as municipal corporations for this purpose.
Idaho Code § 63-3029A authorized an income tax credit for qualifying gifts to certain charitable organizations supporting public schools. The opinion noted that the credit attached to gifts to qualifying nonprofits regardless of who set the nonprofit up, so the constitutional prohibition on the school district forming the entity did not block the underlying tax benefit; it just changed who had to sponsor the foundation.
The opinion drew on Idaho Falls Consolidated Hospital v. Bingham County Board of County Commissioners, 102 Idaho 838 (1982), for the principle that a fund kept under municipal control avoids the constitutional concern of "private interests gain[ing] advantage at the expense of the taxpayer."
Citations
- Idaho Constitution, art. 8, § 4
- Idaho Constitution, art. 12, § 4
- Idaho Code §§ 30-301 through 30-332 (Idaho's nonprofit corporation provisions as they stood in 1986)
- Idaho Code § 63-3029A (income tax credit for school-related gifts)
- School District No. 8 v. Twin Falls County Mutual Fire Insurance Co., 30 Idaho 400, 164 P. 174 (1917)
- Idaho Falls Consolidated Hospital v. Bingham County Bd. of County Commissioners, 102 Idaho 838, 642 P.2d 553 (1982)
Source
- Landing page: https://www.ag.idaho.gov/office-resources/opinions/
- Original PDF: https://ag.idaho.gov/content/uploads/2018/04/OP86-13.pdf
Original opinion text
STATE OF IDAHO
OFFICE OF THE ATTORNEY GENERAL
JIM JONES
ATTORNEY GENERAL
BOISE 83720
ATTORNEY GENERAL OPINION NO. 86-13
TELEPHONE
(208) 334-2400
TO: The Honorable Pete T. Cenarrusa
Secretary of State
STATEHOUSE MAIL
Per Request for Attorney General's Opinion
Dear Secretary Cenarrusa:
QUESTION PRESENTED:
Does Idaho Constitution art. 12, § 4, prohibit a school district from creating or controlling by membership on the board of directors, a nonprofit corporation, the purpose of which is to accept and manage gifts to the public schools that qualify for income tax credits pursuant to Idaho Code § 63-3029A?
CONCLUSION:
School districts are constitutionally prohibited from creating or aiding any private non-profit corporation, and are not statutorily authorized to create public corporations. However, individuals acting in a private capacity may create a non-profit corporation for the purpose of soliciting and managing gifts exclusively in support of a public school system. Gifts to such a non-profit corporation would qualify for income tax credits provided by Idaho Code § 63-3029A.
ANALYSIS:
Idaho Constitution art. 12, § 4, provides in pertinent part:
No county, town, city, or other municipal corporation, by vote of its citizens or otherwise, shall ever become a stockholder in any joint stock company, corporation or association whatever, or raise money for, or make donation or loan its credit to, or in aid of, any such company or association . . . .
School districts are municipal corporations within the meaning of this section. School District No. 8 v. Twin Falls Mutual Fire Insurance Co., 30 Idaho 400, 164 P. 1174 (1917). Therefore, a school district may not become a stockholder in, raise money for, make a donation to, or loan its credit in aid of any corporation or association. The section was found to prohibit membership by a school district in a non-profit mutual fire insurance company in School District No. 8 v. Twin Falls Mutual Fire Insurance Co., supra. Similarly, Idaho Const. art. 8, § 4, prohibits school districts from lending their credit directly or indirectly in aid of any individual, association or corporation.
Because of the constitutional prohibitions, a school district cannot create a private, non-profit corporation to administer donations to the schools. The above analysis does not prohibit school district trustees or other individuals acting as private citizens, from creating non-profit corporations to solicit and administer gifts to the public schools. Creation of such private non-profit corporations by individuals is authorized by Idaho Code §§ 30-301 through 30-332. The articles of incorporation should ideally contain healthy qualifying language disclaiming any control or involvement by the school district. This type of corporation would be similar in nature to university foundations which are private controlled non-profit corporations created to receive and administer gifts from the public on behalf of the universities.
Alternatively, a school district can establish a separate trust fund or account within its existing financial structure, to receive, invest, and distribute donations to the public schools. Such an account or system does not appear to be contrary to the prohibitions found in art. 8, § 4, and art. 12, § 4. As was stated in Idaho Falls Consolidated Hospital v. Bingham County Board of County Commissioners, 102 Idaho 838 (1982), where a fund was established by the county to aid indigents, "[a fund] remaining within control of the municipality helps insure that private interests will not gain advantage at the expense of the taxpayer." 102 Idaho at 841.
By proceeding cautiously, the school districts or interested members of the public can use the mechanisms described above to create an effective means of receiving and administering donations to the public schools.
DATED this 2nd day of December, 1986.
ATTORNEY GENERAL
State of Idaho
ANALYSIS BY:
DAVID G. HIGH
Chief, Business Affairs and State Finance
DANIEL G. CHADWICK
Deputy Attorney General
Intergovernmental Affairs
AUTHORITIES CONSIDERED
Idaho Constitution
Article 8, section 4
Article 12, section 4
Idaho Code
Idaho Code §§ 30-301--30-332
Idaho Code § 63-3029A
Idaho Cases
School District No. 8 v. Twin Falls County Mutual Fire Insurance Co., 30 Idaho 400, 164 P. 174 (1917).
Idaho Falls Consolidated Hospital v. Bingham Co. Bd. of County Commissioners, 102 Idaho 838, 642 P.2d 553 (1982).