HELENA – A state court has rejected a Revenue Department rule that said private, religious schools in Montana can’t benefit from a new state education tax credit – but the department said Thursday it will appeal the ruling.

State Revenue Director Mike Kadas told MTN News that the agency believes the tax credit is an “indirect payment” – and that the state constitution forbids any such payment to sectarian, or religious, organizations.

“This issue has been batted back and forth for years,” he said in an interview. “So, getting the (Supreme) Court to say one way or another will hopefully resolve it.”

Supporters of the tax credit hailed last week’s ruling by District Judge Heidi Ulbricht of Kalispell, who said a tax credit benefitting religious schools is allowed because it’s not an “appropriation” of state money.

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“This is wonderful news,” said Jeff Laszloffy, president of the Montana Family Foundation, one of the most prominent advocates of tax credits to assist private school students in Montana. “Parents and children across Montana have more educational opportunity thanks to this ruling. It’s better for kids, better for families and better for Montana.”

The Revenue Department rule is one of several implementing Senate Bill 410, which was passed by the 2015 Montana Legislature.

The bill creates a maximum $150 state income-tax credit for donations to nonprofit “student scholarship organizations,” which are set up to provide scholarships to students attending private schools.

The law said scholarships can go to “qualified education providers,” but the Revenue Department rule issued in December 2015 said a school affiliated with a church or religion cannot be a qualified education provider. The agency said the rule reflects the constitutional ban on state money going to sectarian purposes.

Parents of students attending Stillwater Christian School in Kalispell sued in early 2016 to overturn the rule, arguing that the tax credit is not an expenditure of state funds.

Ulbricht agreed, saying that the constitutional ban on aiding religious groups applies only to “appropriations” of state money.