Do Virginia tax credits for donations to sectarian schools or charities violate the state constitution's appropriations clauses?

Plain-English summary

In May 2012, Delegate Scott Surovell asked Attorney General Cuccinelli whether several proposed Virginia tax credits would violate the state constitution's two appropriations bans: Article IV, § 16 (no appropriations to churches, sectarian societies, or charitable institutions not owned by the Commonwealth) and Article VIII, § 10 (no appropriations to schools not owned or exclusively controlled by the state or its political subdivisions). The three proposals were a general credit for donations to IRC § 501(c)(3) nonprofits not controlled by the Commonwealth (proposal one); an "Energy Star" credit for donations to nonprofits buying energy-efficient equipment for their headquarters (H.B. 1046, 2010 session); and a credit for businesses donating to scholarship foundations, which can include private schools (H.B. 2314, 2011 session). The AG said none of these tax credits violated the appropriations clauses.

The reasoning turned on a precise reading of "appropriation." In Virginia jurisprudence, an appropriation is a specific legislative act by which a named sum of money is set apart in the treasury and devoted to a particular use. Almond v. Day, which the requester cited, analyzed Item 210 of the 1954 Appropriation Act, which paid general fund money to parents and guardians of children attending public and private schools. The Supreme Court of Virginia rejected the argument that paying parents (rather than schools) saved the item, holding that the payments benefited the private schools that collected them and so violated the constitutional prohibition. A 2011 AG opinion had used similar reasoning to find unconstitutional a budget amendment setting aside a specific sum for a specific charitable recipient not controlled by the Commonwealth.

Tax credits, the AG argued, were different in kind. They reduced revenue going into the treasury rather than directing money out. Three structural differences:

1. No sum certain. A tax credit statute does not set aside a specific amount in the treasury when it passes.
2. No specific recipient. The taxpayer chooses the donee; the statute does not.
3. No single-budget-cycle event. Most credits are nonrefundable and carry forward, so they operate over multiple budget cycles, unlike single-year appropriations.

The AG also pointed out a doctrinal slippery slope: if a tax credit counted as an appropriation, so would a tax deduction. Virginia allows deductions for charitable contributions, including to churches, because the deduction likewise reduces revenue that would otherwise reach the general fund. Reading "appropriation" to capture revenue reductions would make those deductions unconstitutional. The Neighborhood Assistance Act Tax Credit would be open to challenge on the same theory.

Currency note

This opinion was issued in 2012. 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.

Background and statutory framework

Article IV, § 16 of the Virginia Constitution forbids the General Assembly from making "any appropriation of public funds, personal property, or real estate to any church or sectarian society, or any association or institution of any kind whatever which is entirely or partly, directly or indirectly, controlled by any church or sectarian society," and bars "like appropriation to any charitable institution which is not owned or controlled by the Commonwealth."

Article VIII, § 10 forbids "appropriation of public funds . . . to any school or institution of learning not owned or exclusively controlled by the State or some political subdivision thereof." Both provisions contain limited exceptions not relevant here.

Almond v. Day construed Item 210 of the 1954 Appropriation Act, which paid general fund money to parents and guardians of children attending public and private schools. The Supreme Court of Virginia rejected the argument that paying parents (not schools) saved the appropriation; it looked to who ultimately received the benefit and held the appropriation unconstitutional because the benefited entities were not owned or controlled by the Commonwealth.

The 2011 AG opinion cited by the requester had reviewed proposed budget amendments setting aside a specific sum for a specific charitable recipient not controlled by the Commonwealth, within a specific budget cycle, and found those allocations unconstitutional under the same provisions.

Common questions

Q: Does a Virginia tax credit for donations to a religious or private school violate the state constitution's appropriations clauses?
A: Per this opinion, no. A tax credit reduces revenue flowing into the treasury; it is not an appropriation of public funds out of the treasury. Article IV, § 16 and Article VIII, § 10 apply only to appropriations.

Q: Why didn't Almond v. Day control?
A: Almond involved direct general fund payments to parents that ended up at private schools. The AG drew the line between direct outlays (subject to Almond) and tax credits (a reduction in incoming revenue). The opinion treated Almond as a case about money flowing out of the treasury, not about money never collected.

Q: Did the AG address whether these credits violated the First Amendment or Virginia's religious liberty clause?
A: No. The opinion is limited to the appropriations clauses of Article IV, § 16 and Article VIII, § 10. It did not reach any First Amendment or state religious-liberty question, which the requester had not raised.

Q: Does the reasoning also protect charitable tax deductions?
A: The opinion used that point as support. It reasoned that if a tax credit were an "appropriation," so would a deduction for charitable gifts (including to churches), since both reduce revenue reaching the general fund. The AG treated that as a reason the broad reading could not be right.

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2012/11-144_Surovell.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

May 25, 2012

The Honorable Scott A. Surovell
Member, House of Delegates
Post Office Box 289
Mount Vernon, Virginia 22121

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

Dear Delegate Surovell:

I am responding to your request for a formal advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You inquire whether the constitutional limitations on the General Assembly's power to appropriate funds to specified entities preclude the offering of certain income tax credits. Specifically, you ask whether the restrictions imposed by Article IV, § 16 and Article VIII, § 10 of the Constitution of Virginia apply to statutes permitting Virginia taxpayers to claim tax credits for making contributions to sectarian entities, nonprofit organizations not controlled by the Commonwealth or to private schools not owned or controlled by the Commonwealth or one of its political subdivisions.

Response

It is my opinion that that the limitations on the General Assembly's appropriation powers contained in Article IV, § 16 and Article VIII, § 10 of the Constitution of Virginia do not preclude the enactment of statutes allowing tax credits that Virginia taxpayers may claim for making contributions to sectarian entities, nonprofit organizations not controlled by the Commonwealth or to private schools not owned or controlled by the Commonwealth or one of its political subdivisions.

Background

You identify three legislative proposals that would provide tax credits for certain taxpayers. The first tax credit would be available to taxpayers who contribute funds to an entity that is exempt from federal taxation pursuant to Section 501(c)(3) of the Internal Revenue Code ("IRC") but that is not controlled by the Commonwealth. The second credit, proposed by H.B. 1046 in the 2010 General Assembly Session, grants a tax credit to those taxpayers who make a donation to charitable nonprofit organizations that use the donation to construct, purchase, or lease Energy Star qualified products in their headquarters. Finally, the third credit, as proposed by H.B. 2314 in the 2011 General Assembly Session, establishes a credit for businesses that donate to scholarship foundations. The amount of each credit would be based on the amount that the taxpayer donated to one of the identified entities.

Applicable Law and Discussion

Article IV, § 16 of the Constitution of Virginia provides, in part:

The General Assembly shall not make any appropriation of public funds, personal property, or real estate to any church or sectarian society, or any association or institution of any kind whatever which is entirely or partly, directly or indirectly, controlled by any church or sectarian society. Nor shall the General Assembly make any like appropriation to any charitable institution which is not owned or controlled by the Commonwealth . . .

Article VIII, § 10 of the Constitution of Virginia provides, in part:

No appropriation of public funds shall be made to any school or institution of learning not owned or exclusively controlled by the State or some political subdivision thereof . . . .

The proposed income tax credits you identify would be available in specified circumstances to be claimed by taxpayers who made monetary contributions to: (1) churches, sectarian and non-sectarian schools or nonprofit organizations exempt from federal taxation under IRC § 501(c)(3); (2) sectarian and non-sectarian nonprofit organizations using "Energy Star qualified products;" or (3) approved scholarship foundations, which can include private schools.

In your inquiry, you refer to precedent of the Supreme Court of Virginia and to a prior opinion of this Office. Based on the analysis contained therein, you suggest that by providing state income tax credits for private donations to sectarian entities, private schools and nonprofit organizations not controlled by the Commonwealth, the General Assembly would transgress the noted constitutional prohibitions. The enactments addressed in that case and opinion, however, are distinguishable from the proposed legislation you present.

In Almond v. Day, the Supreme Court analyzed Item 210 of the Appropriation Act of 1954. That Item authorized payments from the Commonwealth's General Fund Revenues to the parents, guardians or custodians of children attending public and private schools and otherwise eligible for benefits under that Act. An argument advanced in defense of that appropriation was that the general fund payments in question went to private individuals, i.e., parents, guardians or custodians of school age children, and not to private schools. Finding that argument unpersuasive, the Supreme Court held that payments from the general fund for the specific purpose of reimbursing tuition and educational fees benefited the private schools that collected the payments. Because the entities receiving the benefit of the appropriation were not owned or controlled by the Commonwealth, the enactment violated the constitutional prohibition.

The 2011 Opinion of the Attorney General you cite involved proposed amendments to the state budget to allocate specific sums to charitable organizations that are not owned or controlled by the Commonwealth. This Office, upon review of the legislation, which would have set aside a specific sum of funding for a specific recipient within a specific budget cycle, concluded that such amendments ran afoul of the constitutional prohibition.

What distinguishes the previously addressed legislation from the proposed enactments you put forward is the nature of the legislative action at issue. By their terms, the restrictions of Article IV, § 16 and Article VIII, § 10 apply only to "appropriation[s] of public funds[.]" Absent an appropriation, the constitutional limitations you identify do not apply.

"[E]very word employed in the Constitution is to be expounded in its plain, obvious, and common sense[.]" In the context of public law, an "appropriation" is a "specific . . . act of the legislature by which a named sum of money has been set apart in the treasury and devoted to the payment of a particular demand." The formal act of appropriation takes place when the General Assembly actually sets aside a specific sum for a specific use. As the Almond court noted, "appropriation" is defined as "'[m]oney set aside by formal action to a specific use.'" Moreover, an element "of 'appropriation' is that [it comes] . . . out of the general revenues of the state . . . ." In contrast, because income tax credits offset dollar for dollar the tax obligation a taxpayer would otherwise incur, the benefit derived from a tax credit does not flow out of the state's general fund; rather, it reduces the tax revenues that would otherwise go into the general fund.

Legislation providing for tax credits does not set aside a sum certain in the treasury upon its passage, nor does it identify each individual who will benefit from its passage. Moreover, it does not allocate a specific credit amount to any particular claimant since each qualifying taxpayer will not necessarily be entitled to the maximum allowable credit for any specific year. Also, given that most tax credits are nonrefundable, available but unused credits can be carried over to subsequent tax years and can be taken throughout additional periods generally ranging from three to five years. Thus, unlike an appropriation, the availability of a tax credit often extends beyond a single budget cycle. Based on these distinctions, I conclude that none of the tax credits you present is the equivalent of an "appropriation" for purposes of Article IV, § 16 and Article VIII, § 10 of the Constitution of Virginia.

Significantly, if the meaning of "appropriation" were extended as you suggest, charitable donations to churches would not be deductible for Virginia income tax purposes, for by allowing deductions for sectarian causes, the General Assembly has decreased the tax revenues that otherwise would flow into the general fund. Similarly, the tax benefits available in statutory schemes such as the Neighborhood Assistance Act Tax Credit would be subject to challenge to the extent the donations from which the credits derive benefit sectarian entities or nonprofit organizations not controlled by the Commonwealth.

Conclusion

Accordingly, it is my opinion that the limitations on the General Assembly's appropriation powers contained in Article IV, § 16 and Article VIII, § 10 of the Constitution of Virginia do not preclude the enactment of statutes allowing tax credits that Virginia taxpayers may claim for making contributions to sectarian entities, nonprofit organizations not controlled by the Commonwealth or to private schools not owned or controlled by the Commonwealth or one of its political subdivisions.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General