Certified School Tuition Organizations (STOs) are established to receive income tax credit contributions that fund scholarships for students to attend qualified private schools located in Arizona (A.R.S. Title 43, Chapters 15 and 16). A nonprofit organization in this state that is exempt or has applied for exemption from federal taxation under section 501(c)(3) may apply to ADOR for certification as an STO. Once certified, an STO may receive tax credit donations from individual and/or corporate taxpayers.
Requirements for an STO to be eligible for and retain certification for receiving tax credit donations:
- The STO must allocate at least 90% of its annual tax credit contributions to scholarships;
- The STO shall not limit the availability of scholarships to students of one school;
- The STO must allow ADOR to verify that the scholarships issued are awarded to students attending a qualified school (corporate income tax credit program);
- The STO must not knowingly collude with any other STO to circumvent the limits of the low-income corporate scholarship (corporate income tax credit program);
- The STO may allow donors to recommend student beneficiaries but shall not award, designate or reserve scholarships solely on the basis of donor recommendations (individual income tax credit programs);
- The STO shall not allow donors to designate student beneficiaries as a condition of any contribution to the organization (individual income tax credit programs);
- The STO shall not facilitate, encourage or knowingly permit the exchange of student beneficiary designations (i.e. swapping) (individual income tax credit programs);
- The STO 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 is up to 185% of poverty level and (b) students whose family income is greater than 185% of poverty level but not more than 342.25% of poverty level;
- The STO must not award scholarships to students who are simultaneously enrolled in a district school or charter school and a qualified school;
- The STO shall follow all other statutory requirements in A.R.S. §§ 43-1089, 43-1089.03, 43-1089.04 or Title 43, Chapter 16;
- The STO shall follow all other statutory requirements in A.R.S. §§ 20-224.06, 20-224-07, 43-1183, 43-1184 or Title 43, Chapter 15.