A.R.S. tit. 43 ch. 16 — Arizona Revised Statutes Title 43 Chapter 16 — School Tuition Organizations For Individual Contributions

43-1601. Definitions In this chapter, unless the context otherwise requires: 1. "Allocate" includes reserving money for an award of a multiyear educational scholarship or tuition grant for a specific student. 2. "Fiscal year" means the fiscal year of the state as prescribed in section 35-102. 3. "Qualified school" means a preschool that offers services to students with disabilities, nongovernmental primary school or secondary school that is located in this state and that does not discriminate on the basis of race, color, disability, familial status or national origin and that requires all teaching staff and personnel that have unsupervised contact with students to be fingerprinted. Qualified school does not include a charter school or programs operated by a charter school. 4. "Students with disabilities" means students who have any of the following conditions: (a) Hearing impairment. (b) Visual impairment. (c) Developmental delay. (d) Preschool severe delay. (e) Speech/language impairment. 43-1602. Certification as a school tuition organization A. A nonprofit organization in this state that is exempt or has applied for exemption from federal taxation under section 501(c)(3) of the internal revenue code may apply to the department of revenue for certification as a school tuition organization, and the department shall certify the school tuition organization if it meets the requirements prescribed by this chapter. An organization must apply for certification on a form prescribed and furnished on request by the department. B. The department shall: 1. Maintain a public registry of currently certified school tuition organizations. 2. Make the registry available to the public on request. 3. Post the registry on the department's official website. C. The department shall send notice by certified mail or by e-mail to a school tuition organization if the department determines that the school tuition organization has engaged in any of the following activities: 1. Failed or refused to allocate at least ninety percent of annual revenues from contributions made for the purposes of sections 43-1089 and 43-1089.03 for educational scholarships or tuition grants. 2. Failed or refused to file the annual reports required by section 43-1604. 3. Limited the availability of scholarships to students of only one school. 4. Encouraged, facilitated or knowingly permitted taxpayers to engage in actions prohibited by this article. 5. Awarded, restricted or reserved educational scholarships or tuition grants for use by a particular student based solely on the recommendation of the donor. 6. Failed or refused to meet any of the requirements in section 43-1603, subsection B. 7. Failed or refused to include the notice required in section 43-1603, subsection C. 8. Failed or refused to comply with the audit or financial review requirements of section 43-1605. D. A school tuition organization that receives notice from the department pursuant to subsection C of this section has ninety days to correct the violation identified by the department in the notice. If a school tuition organization fails or refuses to comply after ninety days, the department may remove the organization from the list of certified school tuition organizations and shall make available to the public notice of removal as soon as possible. An organization that is removed from the list of certified school tuition organizations must notify any taxpayer who attempts to make a contribution that the contribution is not eligible for the tax credit and offer to refund all donations received after the date of the notice of termination of certification. E. A school tuition organization may request an administrative hearing on the revocation of its certification as provided by title 41, chapter 6, article 10. Except as provided in section 41-1092.08, subsection H, a decision of the department is subject to judicial review pursuant to title 12, chapter 7, article 6. 43-1603. Operational requirements for school tuition organizations; notice; qualified schools A. A certified school tuition organization must be established to receive contributions from taxpayers for the purposes of income tax credits under sections 43-1089 and 43-1089.03 and to pay educational scholarships or tuition grants to allow students to attend any qualified school of their parents' choice. B. To be eligible for certification and retain certification, the school tuition organization: 1. Must allocate at least ninety percent of its annual revenue from contributions made for the purposes of sections 43-1089 and 43-1089.03 for educational scholarships or tuition grants. 2. Shall not limit the availability of educational scholarships or tuition grants to only students of one school. 3. May allow donors to recommend student beneficiaries, but shall not award, designate or reserve scholarships solely on the basis of donor recommendations. 4. Shall not allow donors to designate student beneficiaries as a condition of any contribution to the organization, or facilitate, encourage or knowingly allow the exchange of beneficiary student designations in violation of section 43-1089, subsection F, section 43-1089.03, subsection F and section 43-1089.04, subsection E. 5. Shall include on the organization's website, if one exists, the percentage and total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year to: (a) Students whose family income meets the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1793) for free or reduced-price lunches. (b) Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty-five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1793) for free or reduced-price lunches. 6. Must not award educational scholarships or tuition grants to students who are simultaneously enrolled in a district school or charter school and a qualified school. C. A school tuition organization shall include the following notice in any printed materials soliciting donations, in applications for scholarships and on its website, if one exists: Notice A school tuition organization cannot award, restrict or reserve scholarships solely on the basis of a donor's recommendation. A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer's own dependent. D. In evaluating applications and awarding, designating or reserving scholarships, a school tuition organization: 1. Shall not award, designate or reserve a scholarship solely on the recommendation of any person contributing money to the organization, but may consider the recommendation among other factors. 2. Shall consider the financial need of applicants. E. A taxpayer's contribution to a school tuition organization that exceeds the amount of the credit allowed by section 43-1089 but does not exceed the amount of the credit allowed by section 43-1089.03 is considered a contribution pursuant to section 43-1089.03. A school tuition organization must use at least ninety percent of contributions made pursuant to section 43-1089.03 for educational scholarships or tuition grants for students to whom any of the following applies: 1. Attended a governmental primary or secondary school as a full-time student as defined in section 15-901 or attended a preschool program that offers services to students with disabilities at a governmental school for at least ninety days of the prior fiscal year and transferred from a governmental school to a qualified school. 2. Enroll in a qualified school in a kindergarten program or a preschool program that offers services to students with disabilities. 3. Are the dependent of a member of the armed forces of the United States who is stationed in this state pursuant to military orders. 4. Are homeschooled before enrolling in a qualified school. 5. Moved to this state from out of state before enrolling in a qualified school. 6. Participated in an Arizona empowerment scholarship account and did not renew the account or accept the scholarship in order to accept a scholarship or tuition grant under this section. 7. Subject to subsection H of this section, are placed in foster care pursuant to title 8, chapter 4 at any time before the student graduates from high school or obtains a general equivalency diploma and who meet all of the following criteria: (a) Are unable to attend a governmental primary or secondary school as a full-time student as defined in section 15-901. For the purposes of this subdivision, "unable to attend" means the student has been expelled or asked not to return due to the student's behavior or the school is not able to provide necessary services to the student. (b) Have not attended a governmental primary or secondary school as a full-time student as defined in section 15-901 for at least ninety days of the prior fiscal year or one full semester before enrolling in a qualified school. (c) The qualified school in which the students are enrolling is only considered because a governmental primary or secondary school cannot meet the students' unique needs, such as severe medical or behavioral needs that require specialized programs. (d) Are unable to receive other scholarships or tuition grants under this chapter or chapter 15 of this title in an amount that is equal to the cost of tuition to attend the qualified school. 8. Received an educational scholarship or tuition grant under paragraph 1, 2, 3, 4, 5, 6 or 7 of this subsection or under chapter 15 of this title if the student continues to attend a qualified school in a subsequent year. F. In awarding educational scholarships or tuition grants from contributions made pursuant to section 43-1089.03, a school tuition organization shall give priority to students and siblings of students on a waiting list for scholarships if the school tuition organization maintains a waiting list. G. If an individual educational scholarship or tuition grant exceeds the school's tuition, the amount in excess shall be returned to the school tuition organization that made the award or grant. The school tuition organization may allocate the returned monies as a multiyear award for that student and report the award pursuant to section 43-1604, subsection A, paragraph 5, subdivision (b) or may allocate the returned monies for educational scholarships or tuition grants for other students. H. If a court of competent jurisdiction issues a final judgment that the aggregate tax credit limit prescribed in section 43-1183, subsection C, paragraph 1 is unenforceable and that judgment is no longer subject to further appeal or review, a school tuition organization shall not issue an educational scholarship or a tuition grant under subsection E, paragraph 7 or 8 of this section for children who received an educational scholarship or a tuition grant under subsection E, paragraph 7 of this section. 43-1604. Annual report; posting A. On or before September 30 of each year, each school tuition organization shall report electronically to the department, in a form prescribed by the department, the following information, separately compiled and identified for the purposes of sections 43-1089 and 43-1089.03: 1. The name, address and contact person of the school tuition organization. 2. The total number of contributions received during the previous fiscal year. 3. The total dollar amount of contributions received during the previous fiscal year. 4. The total number of children awarded educational scholarships or tuition grants during the previous fiscal year. 5. The total dollar amount of: (a) Educational scholarships and tuition grants distributed during the previous fiscal year. (b) Money being held for identified students' scholarships and tuition grants in future years. 6. The cost of audits pursuant to section 43-1605 paid during the fiscal year. 7. The total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year to: (a) Students whose family income meets the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1793) for free or reduced-price lunches. (b) Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty-five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1793) for free or reduced-price lunches. 8. For each school to which educational scholarships or tuition grants were awarded: (a) The name and address of the school. (b) The number of educational scholarships and tuition grants awarded during the previous fiscal year. (c) The total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year. 9. The names, job titles and annual salaries of the three employees who receive the highest annual salaries from the school tuition organization. B. The department shall post on its website a report of the information it receives pursuant to subsection A of this section on or before March 31 of the calendar year following the year in which the information is received. 43-1605. Audits and financial reviews A. On or before September 30 of each year, each school tuition organization that received one million dollars or more in total donations in the previous fiscal year shall provide for a financial audit of the organization. The audit must be conducted in accordance with generally accepted auditing standards and must evaluate the organization's compliance with section 43-1603, subsection B, paragraph 1. The audit must be conducted by an independent certified public accountant who is licensed in this state or who has a limited reciprocity privilege pursuant to section 32-725. The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards. B. On or before September 30 of each year, each school tuition organization that received less than one million dollars in total donations in the previous fiscal year shall provide for a financial review of the organization. The review must be conducted in accordance with standards for accounting and review services and must evaluate the organization's compliance with the fiscal requirements of this article. The review must be conducted by an independent certified public accountant who is licensed in this state or who has a limited reciprocity privilege pursuant to section 32-725. The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards. C. Within five days after receiving the audit or financial review the school tuition organization shall file a signed copy of the audit or financial review with the department. D. The school tuition organization shall pay the fees and costs of the certified public accountant under this section from the organization's operating monies. The fees and costs shall be excluded from the calculation of total revenues spent on scholarships and tuition grants.