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Tax incentive for school donations hits limit five minutes after launching

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Donors have reached a $1 million cap for a new incentive in Montana, matching dollar-for-dollar tax credits for contributions to public schools. The limit was reached within five minutes of the program launching this year.

Montana Free Press reporter Alex Sakariassen reported that some school districts had to return checks to donors because they couldn't log donations fast enough. MTPR's Freddy Monares spoke with Sakariassen about his reporting.

Freddy Monares Let's start off with this new tax incentive in Montana. What was the reason for implementing it and setting a cap on it?

Alex Sakariassen The tax credit programs on both the public and the private side were passed by the Legislature in 2015, and the program on the private side got a lot of pushback initially, generated litigation. The Montana Supreme Court terminated the program in 2018 on the private side due to concerns that it was going to direct public money towards private religious schools. And then in 2018, the U.S. Supreme Court overturned that decision and ruled that Montana couldn't exclude private religious schools from the program. So in 2021, lawmakers went back, revisited it and decided to up the individual credit limits to $200,000, but lower the cap from $3 million to $1 million to reduce the potential tax burden to the state of Montana.

Montana school districts hit $1 million cap on tax credits for public school donations in mere minutes.

Freddy Monares So, so you kind of mentioned this, but donors to private school scholarships can also get a tax credit under a separate $1 million cap. What did you learn about the early donations there?

Alex Sakariassen Yeah, so the donations I checked so far, on the private side, only $165,000 have been claimed for tax credits for donations to private school scholarships.

Freddy Monares Yeah, and can you sort of just explain what does a dollar-for-dollar matching mean, exactly?

Alex Sakariassen Essentially, what the tax credit does is, up to $200,000 you get a dollar-for-dollar credit against your income tax for the tax year 2022. Which, if you're donating a significant amount of money, could put a pretty big dent in your income tax burden, you know, when you're filing in 2023.

Freddy Monares Yeah, I want to talk about the school districts' reactions now. Were they surprised with how quick donations came in?

Alex Sakariassen Some were. So I talked to the chief financial officer for the Billings School District, Craig Van Nice, and they had a north of $20,000 donation, ready to go, ready to enter at 8 a.m. They were unable to. Now they need to check and see if the donor is still willing to donate the money without the tax credit. But the superintendent in Kalispell, Micah Hill, told me that he was fairly certain they were going to hit the limit within 15 minutes. And so Kalispell was doing some really robust messaging on this in the weeks leading up to the portal launching through the Department of Revenue. And he had five people entering simultaneously, and only four of their donations were claimed.

Freddy Monares So what's a plan for donations now that the $1 million tax credit cap has been reached?

Alex Sakariassen Well, I think some school districts — any school districts who had a donor ready to go and wasn't able to claim the tax credit — is in a rather tricky position. They'd have to go back to those donors and let them know, you're not going to get the tax credit dollar-for-dollar. It's it's a tricky position for those districts to have to go back and say, 'sorry, we weren't able to get this in in time. It was more competitive than we thought may be. And do you still want to donate that money?'

Freddy Monares Are there plans, do you know, to increase the limit?

Alex Sakariassen So the limit does increase. The changes were implemented through House Bill 279, and 279 ups the limit in tax year 2023 to $2 million for both the public and the private.

That was MTPR's Freddy Monares is speaking with Montana Free Press reporter Alex Sakariassen about donors hitting a $1 million cap on a tax incentives for donating to public schools.

Montana school districts hit $1 million cap on tax credits for public school donations in mere minutes.