                  FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

KATHLEEN M. WINN, an Arizona           
taxpayer; DIANE WOLFTHAL, an
Arizona taxpayer; MAURICE
WOLFTHAL, an Arizona taxpayer
LYNN HOFFMAN, an Arizona
taxpayer,
              Plaintiffs-Appellants,         No. 05-15754
                 v.
                                              D.C. No.
                                           CV-00-00287-EHC
ARIZONA CHRISTIAN SCHOOL TUITION
ORGANIZATION; ARIZONA SCHOOL                  OPINION
CHOICE TRUST; LUIS MOSCOSO;
GALE GARRIOTT, in his official
capacity as Director of the
Arizona Department of Revenue;
GLENN DENNARD,
             Defendants-Appellees.
                                       
        Appeal from the United States District Court
                 for the District of Arizona
         Earl H. Carroll, District Judge, Presiding

                  Argued and Submitted
          January 24, 2008—Pasadena, California

                    Filed April 21, 2009

    Before: Dorothy W. Nelson, Stephen Reinhardt and
            Raymond C. Fisher, Circuit Judges.

                  Opinion by Judge Fisher



                            4587
              WINN v. ARIZONA CHRISTIAN SCHOOL            4591




                         COUNSEL

Marvin S. Cohen (argued), Sacks Tierney, P.A., Scottsdale,
Arizona; Paul Bender, Arizona State University College of
Law, Tempe, Arizona; and Isabel M. Humphrey, Three Gate-
way, Phoenix, Arizona, for the plaintiffs-appellants.

Terry Goddard, Arizona Attorney General, and Paula S.
Bickett (argued), Phoenix, Arizona, for the defendants-
appellees.

Timothy D. Keller (argued) and Clint Bolick, Institute for Jus-
tice, Phoenix, Arizona; and Richard D. Komer, Institute for
Justice, Washington, D.C., for intervenors-defendants-
appellees Arizona School Choice Trust, Glenn Dennard and
Luis Moscoso.

Benjamin W. Bull, Gary S. McCaleb, Jeremy D. Tedesco,
Alliance Defense Fund, Scottsdale, Arizona, for intervenor-
defendant-appellee Arizona Christian School Tuition Organi-
zation.
4592             WINN v. ARIZONA CHRISTIAN SCHOOL
                                OPINION

FISHER, Circuit Judge:

   Arizona law grants income tax credits restricted to taxpay-
ers who make contributions to nonprofit organizations that
award private school scholarships to children. Plaintiffs, cer-
tain Arizona taxpayers, allege that some of the organizations
funded under this program restrict the availability of their
scholarships to religious schools, and that the program in
effect deprives parents, the program’s aid recipients, of a gen-
uine choice between selecting scholarships to private secular
schools or religious ones. We conclude that the plaintiffs’
complaint, which at this stage of the litigation we must view
in the light most favorable to the plaintiffs, sufficiently alleges
that Arizona’s tax-credit funded scholarship program lacks
religious neutrality and true private choice in making scholar-
ships available to parents. Although scholarship aid is allo-
cated partially through the individual choices of Arizona
taxpayers, overall the program in practice “carries with it the
imprimatur of government endorsement.” Zelman v.
Simmons-Harris, 536 U.S. 639, 655 (2002). We therefore
hold, contrary to the district court, that plaintiffs’ allegations,
if accepted as true, are sufficient to state a claim that Arizo-
na’s private school scholarship tax credit program, as applied,
violates the Establishment Clause of the United States Consti-
tution.

                           BACKGROUND

   Plaintiffs allege that Arizona’s Revised Statute § 43-1089
(“Section 1089”), as applied, violates the Establishment
Clause of the First Amendment. Section 1089, first enacted by
the Arizona legislature in 1997, gives individual taxpayers a
dollar-for-dollar tax credit for contributions to “school tuition
organizations” (“STOs”).1 A STO is a private nonprofit orga-
  1
   A parallel statute, which plaintiffs do not challenge in this action, gives
corporations a dollar-for-dollar tax credit for contributions to STOs. See
Ariz. Rev. Stat. § 43-1183.
                 WINN v. ARIZONA CHRISTIAN SCHOOL                   4593
nization that allocates at least 90 percent of its funds to tuition
grants or scholarships for students enrolled in “a nongovern-
mental primary or secondary school or a preschool for handi-
capped students” within the state. Ariz. Rev. Stat. Ann. § 43-
1089(G)(2)-(3) (2005).2 STOs may not provide scholarships
to schools that “discriminate on the basis of race, color, handi-
cap, familial status or national origin,” but nothing in the stat-
ute precludes STOs from funding scholarships to schools that
provide religious instruction or that give admissions prefer-
ences on the basis of religious affiliation. Id. § 1089(G)(2).
Individual taxpayers can claim a tax credit of up to $500 for
such contributions and married couples filing jointly can
claim a credit of up to $1,000, provided the allowable tax
credit does not exceed the taxes otherwise due. Id. § 1089(A)-
(B). Taxpayers may designate their contribution to a STO that
agrees to provide a scholarship to benefit a particular child, so
long as the child is not the taxpayer’s own dependent. Id.
§ 1089(E). The tax credit is available to all taxpayers in Ari-
zona, regardless of whether they are parents of school-age
children or pay any private school tuition themselves.

   Section 1089 requires STOs to provide scholarships or
tuition grants to children “to allow them to attend any quali-
fied school of their parents’ choice,” but also states that STOs
may not provide scholarships while “limiting availability to
only students of one school.” Id. § 1089(G)(3) (emphasis
added). On its face, then, Section 1089 could have been inter-
preted to require all STOs to provide scholarships to any qual-
ified private school in the state, or to permit STOs to provide
scholarships to a limited set of schools, so long as that set was
greater than one. In practice, plaintiffs allege, many STOs
have opted to limit the schools to which they offer scholar-
  2
   Hereinafter, all cites to “Section 1089” refer to Arizona Revised Stat-
ute Annotated § 43-1089 (2005). Any differences between this current
version of Section 1089 and the version in place as of February 2000,
when plaintiffs’ complaint was filed, are not significant for the purposes
of our analysis.
4594          WINN v. ARIZONA CHRISTIAN SCHOOL
ships, and a number of STOs provide scholarships that may
be used only at religious schools or schools of a particular
denomination. For example, plaintiffs allege that Arizona’s
three largest STOs, as measured by the amount of contribu-
tions reported in 1998, each restricts its scholarships to use at
religious schools. The largest of these, the Catholic Tuition
Organization of the Diocese of Phoenix, restricts its scholar-
ships to use at Catholic schools in the Phoenix Diocese such
as St. Mary’s, which advertises its mission as being “to pro-
vide a quality Catholic education by developing and sustain-
ing a rich tradition grounded in Gospel and family values.”
The second largest STO, the Arizona Christian School Tuition
Organization, expressly restricts scholarships to use at “evan-
gelical” Christian Schools. The third largest, Brophy Commu-
nity Foundation, restricts its scholarships to use at two
Catholic schools, one of which advertises its goal to be “ins-
till[ing] a knowledge of the truths of faith, enlightened by the
post-Conciliar teachings of the Church,” and the other of
which promotes itself as offering students “an intimate rela-
tionship with God” through “the process of nurturing the
soul.”

   Arizona does not specify scholarship eligibility criteria or
dictate how STOs choose the students who receive scholar-
ships, and STO-provided scholarships therefore vary consid-
erably. Although STOs may choose to award scholarships
primarily based on financial need, Section 1089 does not
require it. The availability of scholarships to particular stu-
dents and particular schools thus depends on the amount of
funding a STO receives, the range of schools to which it
offers scholarships and the STO’s own scholarship allocation
decisions and eligibility criteria. Therefore, plaintiffs allege,
because the largest STOs restrict their scholarships to sectar-
ian schools, students who wish to attend non-religious private
schools are disadvantaged in terms of the STO-provided
scholarships available to them. Thus, plaintiffs argue, the dis-
parities in the availability and amount of scholarships for use
at religious and secular schools show that the structure of Sec-
                 WINN v. ARIZONA CHRISTIAN SCHOOL                      4595
tion 1089, as applied, favors religious over secular schools,
and thereby violates the Establishment Clause.

   Before Section 1089 became operative, the Arizona
Supreme Court, based on its construction of the statute, held
that it did not on its face violate the Establishment Clause or
provisions of the Arizona state constitution. See Kotterman v.
Killian, 972 P.2d 606 (Ariz. 1999) (en banc).3 After the statute
took effect, different plaintiffs filed this suit against the Direc-
tor of Arizona’s Department of Revenue in the United States
District Court for the District of Arizona.4 Plaintiffs do not
contest the facial validity of Section 1089, but rather assert
that it violates the Establishment Clause as applied.5 The dis-
trict court dismissed the suit as barred by the Tax Injunction
Act. See Winn v. Killian, 307 F.3d 1011, 1013 (9th Cir. 2002).
We reversed the dismissal, see id. at 1020, and the Supreme
Court affirmed our decision. See Hibbs v. Winn, 542 U.S. 88,
112 (2004). On remand, the district court allowed two STOs,
the Arizona Christian School Tuition Organization
(“ACSTO”) and Arizona School Choice Trust (“ASCT”), and
two parents of ASCT scholarship recipients, Glenn Dennard
and Luis Moscoso, to intervene as defendants. ACSTO pro-
vides scholarships only to religious schools and the ASCT
   3
     Significantly, in rejecting the facial challenge, the Arizona Supreme
Court interpreted Section 1089 to require that “[e]very STO must allow its
scholarship recipients to ‘attend any qualified school of their parents’
choice,’ and may not limit grants to students of only one such institution.”
Id. at 614 (quoting Ariz. Rev. Stat. Ann. § 43-1089(E)(2) (2005) (empha-
sis added)). “Thus,” the Arizona Supreme Court concluded, “schools are
no more than indirect recipients of taxpayer contributions, with the final
destination of these funds being determined by individual parents.” Id.
Because plaintiffs in this action allege that, in practice, Section 1089 per-
mits STOs to restrict the use of their scholarships to certain schools, the
structure of the program as applied is notably different from the program’s
structure as it was considered in Kotterman.
   4
     Current Director Gale Garriott has since replaced former Director
Mark Killian as the named defendant.
   5
     Plaintiffs’ complaint alleged that Section 1089 is invalid both on its
face and as applied, but they have since abandoned their facial challenge.
4596             WINN v. ARIZONA CHRISTIAN SCHOOL
provides scholarships to any private school of the parents’
choice.6 Defendants again moved to dismiss, contending that
plaintiffs lacked standing, that the suit was barred by res judi-
cata and that plaintiffs had failed to state a claim under the
Establishment Clause. The district court granted defendants’
motion to dismiss for failure to state a claim and plaintiffs
appealed. We have jurisdiction under 28 U.S.C. § 1291 and
we reverse and remand for further proceedings.

                    STANDARD OF REVIEW

  We review the district court’s dismissal for failure to state
a claim de novo, “accept[ing] all factual allegations in the
complaint as true and constru[ing] the pleadings in the light
most favorable to the nonmoving party.” Knievel v. ESPN,
393 F.3d 1068, 1072 (9th Cir. 2005). We affirm the district
court “only if it is clear that no relief could be granted under
any set of facts that could be proved consistent with the alle-
gations.” Enesco Corp. v. Price/Costco, Inc., 146 F.3d 1083,
1085 (9th Cir. 1998) (internal quotation marks omitted).
“Standing is a question of law that we review de novo.”
Salmon Spawning & Recovery Alliance v. Gutierrez, 545 F.3d
1220, 1224 (9th Cir. 2008).

                              ANALYSIS

                      I.    Taxpayer Standing

   [1] Plaintiffs’ only allegation of injury from the allegedly
unconstitutional operation of Section 1089 arises from their
status as Arizona taxpayers. It is well established that individ-
  6
    We use the term “defendants” to refer to the Director of Arizona’s
Department of Revenue and the intervening defendants ACSTO, ASCT,
Dennard and Moscoso. We use the term “defendant-intervenors” when
referring only to the intervening defendants. At oral argument, plaintiffs
stipulated that they challenge only those STOs that restrict scholarships to
religious schools, and thus we note that ASCT is not being directly chal-
lenged.
               WINN v. ARIZONA CHRISTIAN SCHOOL              4597
uals do not generally have standing to challenge governmental
spending solely because they are taxpayers, because “it is a
complete fiction to argue that an unconstitutional federal
expenditure causes an individual federal taxpayer any measur-
able economic harm.” Hein v. Freedom From Religion
Found., Inc., 127 S. Ct. 2553, 2559 (2007) (plurality opinion).
This rule applies with equal force to taxpayer suits challeng-
ing an allegedly unconstitutional state action and those chal-
lenging federal action. See DaimlerChrysler Corp. v. Cuno,
547 U.S. 332, 342-49 (2006); Arakaki v. Lingle, 477 F.3d
1048, 1062-63 (9th Cir. 2007). The Supreme Court, however,
has long recognized “a narrow exception to the general con-
stitutional prohibition against taxpayer standing” when a
plaintiff contends that a use of funds violates the Establish-
ment Clause. Hein, 127 S. Ct. at 2564; see Flast v. Cohen,
392 U.S. 83, 88 (1968). Because plaintiffs have alleged that
the state has used its taxing and spending power to advance
religion in violation of the Establishment Clause, we hold that
they have standing under Article III to challenge the applica-
tion of Section 1089.

   [2] As the Supreme Court recently reaffirmed, the Flast
exception to the general bar against taxpayer standing is
rooted “in the history of the Establishment Clause” and is
designed to prevent “ ‘the specific evils feared by [its drafters]
that the taxing and spending power would be used to favor
one religion over another or to support religion in general.’ ”
DaimlerChrysler, 547 U.S. at 348 (alterations in original)
(quoting Flast, 392 U.S. at 103). The exception recognizes
that the “injury” alleged in Establishment Clause challenges
to governmental spending arises not from the effect of the
challenged program on the plaintiffs’ own tax burdens, but
from “the very ‘extract[ion] and spend[ing]’ of ‘tax money’
in aid of religion.” Id. (alterations in original) (quoting Flast,
392 U.S. at 106). Therefore, to satisfy the Flast test for tax-
payer standing, plaintiffs need not show that an injunction
against a particular taxing or spending program would cause
“lawmakers . . . [to] dispose of the savings in a way that
4598             WINN v. ARIZONA CHRISTIAN SCHOOL
would benefit the taxpayer-plaintiffs personally.” Id. at 348-
49. Instead, they need only show that the program challenged
involves “a sufficient nexus between the taxpayer’s standing
as a taxpayer and the . . . [legislative] exercise of taxing and
spending power.” Bowen v. Kendrick, 487 U.S. 589, 620
(1988).

   [3] Section 1089 gives Arizona taxpayers a tax credit for
amounts they donate to STOs, up to the statutory cap of $500
for individuals or $1,000 for married couples filing jointly or
the taxpayers’ entire state tax liability. See Ariz. Rev. Stat.
Ann. § 43-1089(A), (C). Tax credits are deducted after tax-
payers’ tax liability has been calculated, thereby giving tax-
payers dollar-for-dollar “credits” against their state taxes for
sums paid to STOs. Tax credits therefore operate differently
from tax deductions; whereas tax deductions allow taxpayers
only to reduce their income subject to taxation, tax credits
allow individuals to make payments to a third party in satis-
faction of their assessed tax burden. As the Supreme Court
explained, “[i]n effect, § 43-1089 gives Arizona taxpayers an
election” to direct a portion of the money they owe the state
to either a STO or to the Arizona Department of Revenue.
Hibbs, 542 U.S. at 95. Accordingly, “[a]s long as donors do
not give STOs more than their total tax liability, their . . . con-
tributions are costless.” Id. Tax credits are therefore a power-
ful legislative device for directing money to private
organizations.7
  7
    Section 1089’s success is evident from the year-over-year increases in
contributions since the program took effect. Plaintiffs allege that taxpayers
claimed $1.8 million in credits for contributions to STOs in 1998, when
the program was under legal challenge that made it unclear whether
donors would receive the credit, and over $5.9 million in 1999. According
to data on the Arizona Department of Revenue’s public website, these
contributions appear to have further increased since the filing of plaintiffs’
complaint, with taxpayers claiming credits worth over $54 million in
2007. See Arizona Department of Revenue Office of Economic Research
& Analysis, Individual Income Tax Credit for Donations to Private School
Tuition Organizations, 2007, at 3 (April 1, 2008), available at
http://www.revenue.state.az.us/ResearchStats/private_schl_credit_report_
2007.pdf (last visited April 13, 2009).
                 WINN v. ARIZONA CHRISTIAN SCHOOL                    4599
    Defendant-intervenors argue that plaintiffs do not have
standing to challenge Section 1089 even under the Flast
exception, because the money directed by taxpayers to STOs
under the tax credit program does not pass through the state
treasury and therefore the program cannot be characterized as
involving any “expenditure” of public funds.8 The Supreme
Court has recognized, however, that state tax policies such as
tax deductions, tax exemptions and tax credits are means of
“channeling . . . [state] assistance” to private organizations,
which can have “an economic effect comparable to that of aid
given directly” to the organization. Mueller v. Allen, 463 U.S.
388, 399 (1983). The Court has therefore refused to make arti-
ficial distinctions between direct grants to religious organiza-
tions and tax programs that confer special benefits on
religious organizations, particularly tax credits such as the one
challenged here. As the Court noted, “for purposes of deter-
mining whether such aid has the effect of advancing religion,”
it makes no difference whether the qualifying individual “re-
ceives an actual cash payment . . . [or] is allowed to reduce
. . . the sum he would otherwise be obliged to pay over to the
state.” Comm. for Pub. Educ. & Religious Liberty v. Nyquist,
413 U.S. 756, 790-91 (1973). In either case, “the money
involved represents a charge made upon the state for the pur-
pose of religious education.” Id. at 791 (internal quotation
marks omitted); see also Arkansas Writers’ Project, Inc. v.
Ragland, 481 U.S. 221, 236 (1987) (Scalia, J., dissenting)
(“Our opinions have long recognized — in First Amendment
contexts as elsewhere — the reality that tax exemptions, cred-
  8
    ACSTO’s argument that our reasoning is bound by Kotterman’s con-
clusion that the tax credit does not constitute an “appropriation of public
money” within the meaning of the Article II, Section 12 and Article IX,
Section 10 of the Arizona constitution, see 972 P.2d at 617-21, is merit-
less. The Arizona Supreme Court’s holding has no bearing on our analysis
of plaintiffs’ standing in federal court, which turns on the requirements
derived from Article III of the U.S. Constitution. Cf. Hein, 127 S. Ct. at
2562 (“One of the controlling elements in the definition of a case or con-
troversy under Article III is standing.”) (internal quotation marks and
alterations omitted).
4600           WINN v. ARIZONA CHRISTIAN SCHOOL
its, and deductions are a form of subsidy that is administered
through the tax system.”) (internal quotation marks omitted).
In effect, Section 1089 works the same as if the state had
given each taxpayer a $500 check that can only be endorsed
over to a STO or returned to the state. Because Section 1089
does not allow taxpayers to keep the money under any cir-
cumstance — and because it directs how the money will be
spent if it is not surrendered to the state — we reject the sug-
gestion that this money is not publicly subsidized simply
because it does not pass through the treasury.

   Nor does Section 1089 lack “a sufficient nexus between the
taxpayer’s standing as a taxpayer and the . . . [legislative]
exercise of taxing and spending power” just because the Ari-
zona legislature does not transfer money to STOs or religious
schools directly. See Bowen, 487 U.S. at 620. The Arizona
legislature promulgated Section 1089 under the power con-
ferred by Article IX of the Arizona constitution, a provision
that is equivalent to the U.S. Constitution’s taxing and spend-
ing clause. See Ariz. Const. art. IX, § 3. By giving taxpayers
a dollar-for-dollar credit for contributions to STOs and then
requiring STOs to “allocate[ ] at least ninety percent of . . .
[their] annual revenue for educational scholarships or tuition
grants to children,” the state legislature has provided only two
ways for this money to be spent: taxpayers will either give the
dollar to the state, or that dollar (or at least 90 percent of it,
after allowable STO administrative expenses) will end up in
scholarships for private school tuition. See Ariz. Rev. Stat.
Ann. § 1089(G)(3) (2005).

   [4] By structuring the program as a dollar-for-dollar tax
credit, the Arizona legislature has effectively created a grant
program whereby the state legislature’s funding of STOs is
mediated through Arizona taxpayers. The Court has recog-
nized that taxpayer standing exists even when a legislature
does not directly allocate funds to religious organizations, but
instead mediates the funds through another agency. See
Bowen, 487 U.S. at 618-20. Although the Arizona legislature
              WINN v. ARIZONA CHRISTIAN SCHOOL             4601
has chosen an alternative method of allocating the funds that
Section 1089 makes available to STOs, the Court clarified in
Bowen that it was the legislature’s exercise of its taxing and
spending power, rather than the actions of the agency, that
permitted taxpayers to raise an Establishment Clause chal-
lenge. See id. at 619 (“We do not think . . . that appellees’
claim that . . . [appropriated] funds are being improperly used
by individual grantees is any less a challenge to congressional
taxing and spending power simply because the funding autho-
rized by Congress has flowed through and been administered
by the Secretary [of Health and Human Services].”). Accord-
ingly, under Bowen, taxpayers have standing to challenge a
legislature’s exercise of its taxing and spending power even
when the legislature does not use that power to directly fund
religious organizations, but instead uses the power to autho-
rize third parties to fund such organizations.

   [5] Consistent with these principles, the Supreme Court has
repeatedly decided Establishment Clause challenges brought
by state taxpayers against state tax credit, tax deduction and
tax exemption policies, without ever suggesting that such tax-
payers lacked Article III standing. See, e.g., Mueller, 463 U.S.
at 390 (state income tax deduction for school expenses that
could be claimed for expenses at religious schools); Nyquist,
413 U.S. at 789-90 (hybrid state tax deduction-tax credit pro-
gram for tuition paid to private schools); Hunt v. McNair, 413
U.S. 734, 737-38 (1973) (state tax exemption for state-issued
revenue bonds that went in part to religious schools); Walz v.
Tax Comm’n, 397 U.S. 664, 666 (1970) (state property tax
exemption for religious nonprofit organizations). The
Supreme Court has also repeatedly decided challenges
brought by state taxpayers to indirect aid programs — where
the ultimate decision to confer aid rested with a private indi-
vidual and not the government — and again never suggested
that taxpayers lacked standing. See, e.g., Zelman, 536 U.S. at
645 (state tuition grants to parents for public or private
schools); Nyquist, 413 U.S. at 781 (state tuition grants to par-
ents for private schools). Although we acknowledge that “the
4602             WINN v. ARIZONA CHRISTIAN SCHOOL
[c]ourt’s exercise of jurisdiction . . . is not precedent for the
existence of jurisdiction,” Doe v. Madison Sch. Dist. No. 321,
177 F.3d 789, 795 (9th Cir. 1999) (en banc) (internal quota-
tion marks omitted; alteration in original), we also note that
the Court has rejected the suggestion that its consistent past
practice of exercising jurisdiction amounts to “mere ‘sub
silentio holdings’ ” that “command no respect,” Hibbs, 542
U.S. at 94. We therefore hold that plaintiffs have standing as
taxpayers to challenge Section 1089 for allegedly violating
the Establishment Clause.

                 II.    The Establishment Clause

   [6] “The Establishment Clause of the First Amendment,
applied to the States through the Fourteenth Amendment, pre-
vents a State from enacting laws that have the ‘purpose’ or
‘effect’ of advancing or inhibiting religion.”9 Zelman, 536
  9
    Defendants argue that plaintiffs’ as-applied challenge is barred by “res
judicata” in light of Kotterman. In Hibbs v. Winn, however, the Supreme
Court observed that “Kotterman, it is undisputed, has no preclusive effect
on the instant as-applied challenge to § 43-1089 brought by different
plaintiffs.” 542 U.S. at 95. Insofar as we are free to call this observation
into question, we nonetheless find defendants’ argument unpersuasive.
   Under the full-faith-and-credit statute, 28 U.S.C. § 1738, “[w]e give to
a state-court judgment the same preclusive effect as would be given that
judgment under the law of the State in which the judgment was rendered.”
Coeur D’Alene Tribe of Idaho v. Hammond, 384 F.3d 674, 688 (9th Cir.
2004) (internal quotation marks omitted). Kotterman upheld Section 1089
on a facial challenge before the statute was implemented. Plaintiffs allege
that Section 1089 violates the Establishment Clause because STOs have
not provided scholarships in a way that is neutral toward religion and that
offers parents true private choice; this allegation is predicated on evidence
that was not available prior to Section 1089’s implementation. Plaintiffs’
as-applied challenge thus does not, as defendants argue, implicate Arizo-
na’s doctrine of virtual representation. See El Paso Natural Gas Co. v.
State, 599 P.2d 175, 178 (Ariz. 1979). Arizona law bars cases under res
judicata only where “no additional evidence is needed to prevail in the
second action than that needed in the first.” Phoenix Newspapers, Inc. v.
Dep’t of Corr., 934 P.2d 801, 804 (Ariz. App. 1997) (emphasis added). In
                 WINN v. ARIZONA CHRISTIAN SCHOOL                     4603
U.S. at 648-49 (citing Agostini v. Felton, 521 U.S. 203, 222-
23 (1997)).

                       A.     Secular Purpose

   The first prong of this standard requires us to consider
whether the statute was “enacted for . . . [a] valid secular pur-
pose.” Id. at 649. “[A]lthough a legislature’s stated reasons
will generally get deference, the secular purpose required has
to be genuine, not a sham, and not merely secondary to a reli-
gious objective.” McCreary County, Ky v. ACLU, 545 U.S.
844, 864 (2005).

   [7] The legislative history of Section 1089 shows that its
primary sponsor’s concern in introducing the bill was provid-
ing equal access to a wide range of schooling options for stu-
dents of every income level by defraying the costs of
educational expenses incurred by parents. See Ariz. House of
Rep. Comm. on Ways & Means, Minutes of Meeting, Tues.
Jan. 21 1997. Plaintiffs do not contest that this purpose, if
genuine, is both secular and valid. Plaintiffs argue, however,
that Section 1089’s design and scope reveal this purpose to be
a sham. Specifically, plaintiffs argue that Section 1089’s oper-
ation shows that the program, which provides aid only to stu-
dents who attend private schools, was enacted not to give
low-income children a meaningful opportunity to attend those
schools, but to advance the legislature’s religious aims.

determining whether a program’s secular purpose is genuine, and whether
a program has the primary effect of advancing religion, we may consider
additional evidence as to how the program operates in reality. See, e.g.,
McCreary County, Ky. v. ACLU, 545 U.S. 844, 862 (2005) (holding the
“implementation of the statute, or comparable official act” are relevant in
examining a program’s secular purpose (internal quotation marks omit-
ted)). We therefore agree with the Supreme Court that “Kotterman . . . has
no preclusive effect on the instant as-applied challenge . . . .” Hibbs, 542
U.S. at 95.
4604          WINN v. ARIZONA CHRISTIAN SCHOOL
   [8] Plaintiffs are correct that the nature of a program’s
operation may, in some instances, reveal its ostensible pur-
pose to be a sham. See McCreary, 545 U.S. at 862 (stating
that, in some cases, “the government action itself bespoke the
purpose” of a program that violated the Establishment Clause)
(citing Sch. Dist. of Abington Twp. v. Schempp, 374 U.S. 203,
223-24 (1963)). As the Court held in McCreary, the inquiry
whether a program’s putative purpose is genuine and “not
merely secondary to a religious objective,” id. at 864, is
undertaken from the perspective of “an ‘objective observer,’
one who takes account of the traditional external signs that
show up in the ‘text, legislative history, and implementation
of the statute,’ or comparable official act.” Id. at 862 (quoting
Santa Fe Indep. Sch. Dist. v. Doe, 530 U.S. 290, 308 (2000)
(internal quotation marks omitted)). Plaintiffs’ allegations
concerning Section 1089’s operation are therefore relevant to
whether the program has a genuine secular purpose.

   As we discussed above, for example, Section 1089 could,
on its face, be interpreted to require each STO to provide
scholarships for use at any qualified private school, religious
or secular. Plaintiffs allege, however, that in practice STOs
are permitted to restrict the use of their scholarships to use at
certain religious schools. Such allegations, if proved, could
belie defendants’ claim that Section 1089 was enacted primar-
ily to provide Arizona students with equal access to a wide
range of schooling options.

   [9] At the same time, we are mindful of the Supreme
Court’s “reluctance to attribute unconstitutional motives to
the states, particularly when a plausible secular purpose for
the state’s program may be discerned from the face of the
statute.” Mueller, 463 U.S. at 394-95. The Court has held that
programs that direct benefits exclusively to private schools, as
Section 1089 does, may be “adequately supported by legiti-
mate, nonsectarian interests,” including “promoting pluralism
and diversity among [the state’s] public and nonpublic
schools.” Nyquist, 413 U.S. at 773. The question before us,
               WINN v. ARIZONA CHRISTIAN SCHOOL              4605
however, is not whether Section 1089 in fact has a genuine,
secular purpose, but whether plaintiffs could prove, on the
facts alleged in the complaint, that it does not. Accordingly,
we conclude that plaintiffs’ allegations, if accepted as true,
leave open the possibility that plaintiffs could reveal the legis-
lature’s stated purpose in enacting Section 1089 to be a pre-
tense.

                           B.   Effect

   We next consider whether Section 1089 “has the forbidden
‘effect’ of advancing or inhibiting religion.” Zelman, 536 U.S.
at 649. In “refin[ing] the definition of governmental action
that unconstitutionally advances religion,” the Supreme Court
has “paid particularly close attention to whether the chal-
lenged governmental practice either has the purpose or effect
of ‘endorsing’ religion, a concern that has long had a place in
our Establishment Clause jurisprudence.” County of Alle-
gheny v. ACLU, 492 U.S. 573, 592 (1989). Guided by the
Court’s opinion in Zelman, we conclude, for reasons set forth
below, that plaintiffs have alleged facts sufficient to state an
as-applied Establishment Clause claim under this endorse-
ment test.

   Section 1089 is an indirect aid program, under which the
state gives tax credits to individuals who contribute to STOs,
which in turn use the money to provide private school schol-
arships. Plaintiffs allege that many of these STOs in fact exist
to promote the funding of religious education. If the state of
Arizona were to allocate funds directly to these religious
STOs, the state would plainly violate the Establishment
Clause. See Bowen, 487 U.S. at 609-10 (noting that “direct
government aid” impermissibly advances religion “if the aid
flows to institutions that are ‘pervasively sectarian’ ”). As
defendants correctly argue, however, STOs are private chari-
table organizations — albeit funded by taxpayer contributions
4606             WINN v. ARIZONA CHRISTIAN SCHOOL
that the state will reimburse through dollar-for-dollar tax cred-
its.10

   [10] We nevertheless hold that if plaintiffs’ allegations are
accepted as true, Section 1089 violates the Establishment
Clause by delegating to taxpayers a choice that, from the per-
spective of the program’s aid recipients, “deliberately skew[s]
incentives toward religious schools.” Zelman, 536 U.S. at
650; see id. at 652 (emphasizing that in the educational assis-
tance programs the Court has upheld, “[t]he incidental
advancement of a religious mission, or the perceived endorse-
ment of a religious message, is reasonably attributable to the
individual recipient, not to the government, whose role ends
with the disbursement of benefits”). In practice, plaintiffs
allege, the choice delegated to taxpayers under Section 1089
channels a disproportionate amount of government aid to sec-
tarian STOs, which in turn limit their scholarships to use at
religious schools.11 The scholarship program thus skews aid in
favor of religious schools, requiring parents who would prefer
a secular private school but who cannot obtain aid from the
few available nonsectarian STOs to choose a religious school
to obtain the perceived benefits of a private school education.
Accordingly, Section 1089’s delegation to taxpayers operates
to deprive these parents, as the program’s aid recipients, of
“ ‘genuinely independent and private choices’ ” to direct the
program aid to secular schools. Id. at 651 (quoting Witters v.
Wash. Dep’t of Servs. for the Blind, 474 U.S. 481, 487
  10
      Plaintiffs do not argue that STOs are state actors, so we do not decide
whether the STOs’ conduct, in itself, could support an Establishment
Clause claim.
   11
      This allegation is distinct from plaintiffs’ contention that Section
1089’s design reveals its putative secular purpose to be a sham. As we
shall discuss below, the Supreme Court has frequently held that state poli-
cies enacted for a valid secular purpose violate the Establishment Clause
when they are not effectively designed to achieve that purpose. See, e.g.,
Nyquist, 413 U.S. at 788 (“In its attempt to enhance the opportunities of
the poor to choose between public and nonpublic education, the State has
taken a step which can only be regarded as one ‘advancing’ religion.”).
              WINN v. ARIZONA CHRISTIAN SCHOOL             4607
(1986)). Unlike indirect aid programs the Supreme Court has
upheld, Section 1089 is not a “neutral program of private
choice,” and a reasonable observer could therefore conclude
that the aid reaching religious schools under this program
“carries with it the imprimatur of government endorsement.”
Id. at 655.

   Defendants dispute this conclusion on two grounds: First,
that as private institutions who do not receive direct govern-
ment funding, they are no different from other nonprofit, reli-
gious institutions that are funded through tax-deductible
contributions. Second, that under the program, “government
aid reaches religious schools only as a result of the genuine
and independent choices of private individuals.” Zelman, 536
U.S. at 649. We address each of these arguments in turn.

1.   Aid to Private Institutions

   Defendants first argue that because STOs do not receive
direct government funding, Section 1089 is no different from
other programs that accord tax benefits to individuals who
contribute to nonprofit, religious institutions. See, e.g., Her-
nandez v. Comm’r, 490 U.S. 680, 695 (1989) (upholding fed-
eral tax deduction for contributions to charitable and religious
organizations); see also Walz, 397 U.S. at 666-67 (upholding
state property tax exemption for religious and secular non-
profit organizations). As with any program of government aid,
however, whether such programs violate the Establishment
Clause depends on whether they have “either . . . the purpose
or effect of ‘endorsing’ religion.” County of Allegheny, 492
U.S. at 592; see Texas Monthly, Inc. v. Bullock, 489 U.S. 1,
17 (1989) (plurality opinion) (holding sales tax exemption
exclusively available to religious periodicals violated Estab-
lishment Clause because it “lack[ed] a secular objective that
would justify this preference along with similar benefits for
nonreligious publications or groups, and because it effectively
endorses religious belief”); Nyquist, 413 U.S. at 783 (holding
program including grants and tax deductions for private
4608            WINN v. ARIZONA CHRISTIAN SCHOOL
school tuition had valid secular purpose, but violated Estab-
lishment Clause because “the effect of the aid [wa]s unmis-
takably to provide desired financial support for nonpublic,
sectarian organizations”). The parallels defendants contend
exist between Section 1089 and tax deduction programs that
the Supreme Court has held “easily pass[ ] constitutional mus-
ter,” Hernandez, 490 U.S. at 695, are therefore instructive, but
only to the extent they shed light on the secular objectives, if
any, that Section 1089 was enacted to promote.

   [11] The secular objectives defendants argue Section 1089
promotes differ significantly from those advanced by tax
deduction programs the Supreme Court has upheld. The fed-
eral system addressed in Hernandez, for example, permits tax
deductions for “any charitable contribution” to a qualified
entity “organized and operated exclusively for religious, char-
itable, scientific, literary, or educational purposes, or to foster
national or international amateur sports competition.” 26
U.S.C. §§ 170(a), (c)(2)(B); see also Regan v. Taxation with
Representation of Wash., 461 U.S. 540, 544 (1983) (observ-
ing Congress’ system of tax deductions and exemptions pro-
vides “subsidy to non profit civic welfare organizations
generally”). This system, the Court held, makes deductions
available for contributions to an array of religious and secular
organizations, and thus has “the primary effect of . . . encour-
aging gifts to charitable entities, including but not limited to
religious organizations.” Hernandez, 490 U.S. at 696. Section
1089, by contrast, offers narrowly targeted, dollar-for-dollar
tax credits designed to fully reimburse contributions to STOs,
most of which restrict recipients’ choices about how to use
their scholarships. Although defendants contend these credits
were enacted to provide Arizona schoolchildren equal access
to a wide range of schooling options, defendants do not —
and could not — suggest the credits are designed to promote
donations of individual wealth or charitable giving to a broad
array of institutions.12 Likewise, defendants do not suggest
  12
    As the Court recognized in Hernandez, 490 U.S. at 696, tax deduc-
tions promote the secular purpose of encouraging individuals to use their
                 WINN v. ARIZONA CHRISTIAN SCHOOL                       4609
that Section 1089 has a secular purpose in common with laws
granting tax exemptions to a broad range of nonprofit organi-
zations, including churches. See Walz, 397 U.S. at 672-75
(holding law granting property tax exemptions to array of reli-
gious and secular nonprofit institutions served to promote
“beneficial and stabilizing influences in community life” and
minimize “[t]he hazards of churches supporting govern-
ment”); see also id. at 678 (noting the “unbroken practice of
according . . . exemption[s] to churches, openly and by affir-
mative state action, not covertly or by state inaction, is not
something to be lightly cast aside”). Thus, we are not per-
suaded that Section 1089 conforms with the Establishment
Clause simply because it bears some superficial resemblance
to programs that do.

own private wealth to make charitable gifts. By contrast, the one-to-one
tax credits offered under Section 1089 encourage individuals to give
money to private STOs, but allow them to obtain full reimbursement from
the state for their contributions. See Nyquist, 413 U.S. at 789 (explaining
that “the usual attribute of a tax credit” is that it is “designed to yield a
predetermined amount of tax ‘forgiveness’ in exchange for performing a
specific act which the State desires to encourage”). In this respect, the tax
credits offered under Section 1089 resemble those that encourage individ-
uals to provide public financing for the Federal Election Commission’s
Presidential Election Campaign Fund (“PECF”) but which do not, by
design, encourage private charitable donations to the PECF. See 26 U.S.C.
§§ 9001-13. As we explained in our prior opinion in this litigation:
    a tax credit differs from a tax deduction in that where a tax
    deduction is involved, giving money to a religious institution is
    not, as is the case of a tax credit, a free gift. In the case of a tax
    credit, the taxes due are reduced by the full amount of the gift.
    In contrast, when a taxpayer is entitled to a tax deduction, the tax-
    payer must in most if not all instances still pay a majority of the
    tax involved: it is only his taxable income that is reduced by the
    amount of the gift, and, thus, his tax liability is reduced only by
    a percentage of the gift that is equal to the tax rate applicable to
    his income bracket.
Winn v. Killian, 307 F.3d at 1015 n.5, aff’d Hibbs v. Winn, 542 U.S. 88.
The tax credits offered under Section 1089 therefore do not promote the
same secular purpose as the tax deductions upheld in Hernandez.
4610              WINN v. ARIZONA CHRISTIAN SCHOOL
2.        Private Choice

   The Supreme Court has “drawn a consistent distinction
between government programs that provide aid directly to
religious schools, and programs of true private choice, in
which government aid reaches religious schools only as a
result of the genuine and independent choices of private indi-
viduals.” Zelman, 536 U.S. at 649 (citations omitted). Defen-
dants argue that Section 1089, like other religiously neutral
educational assistance programs the Supreme Court has found
constitutional, is a “program of true private choice . . . and [is]
thus constitutional.” Id. at 653.

   The nature of the choices provided under Section 1089,
however, differs significantly in structure from those under
educational assistance programs the Court has held to be
“programs of true private choice.”13 Id. In each of those pro-
grams, the government “provid[ed] assistance directly” to par-
ents or individual students, “who, in turn, direct[ed] the
government aid to religious schools wholly as a result of their
own genuine and independent private choice.” Id. at 652.
Under the voucher program upheld in Zelman, for example,
the state distributed tuition aid directly to eligible parents,
who were free to use the aid to send their children to any par-
ticipating public or private school, and those wishing their
children to remain enrolled in public school received tutorial
aid to accommodate that choice. Id. at 645.

   Under Section 1089, by contrast, the state does not provide
aid directly to parents. Instead the aid is mediated first
through taxpayers, and then through private scholarship pro-
     13
     See Zelman, 536 U.S. 639; Zobrest v. Catalina Foothills Sch. Dist.,
509 U.S. 1 (1993) (upholding federal program providing sign-language
interpreter to student attending Catholic school); Witters, 474 U.S. 481
(upholding state vocational assistance program paying state aid directly to
student attending religious college); Mueller, 463 U.S. 388 (upholding
state tax deduction available to parents for their children’s public and pri-
vate school expenses).
              WINN v. ARIZONA CHRISTIAN SCHOOL              4611
grams. Under Section 1089, all Arizona taxpayers are eligible
for a tuition tax credit, and those whose tax liability is large
enough to use the credit may apply it toward a contribution
to any STO, regardless of whether that STO provides scholar-
ships exclusively for use at religious schools. In turn, any Ari-
zona parent who wishes to send her child to a private school
may apply for a STO scholarship, provided that the child
meets the STO’s eligibility criteria for the use of that scholar-
ship.

   [12] Unlike parents’ choices under the program in Zelman,
or aid recipients’ choices under other programs the Court has
upheld, parents’ choices are constrained by those of the tax-
payers exercising the discretion granted by Section 1089. For
example, by choosing to give state-reimbursed money to the
Catholic Tuition Organization of the Diocese of Phoenix,
which plaintiffs allege to be the largest STO, taxpayers can
make their portion of the program aid available only to par-
ents who are willing to send their children to Catholic
schools. Although anyone may form a new STO devoted to
funding scholarships at secular private schools, Section 1089
prohibits taxpayers from earmarking contributions for their
own children. Thus, it is taxpayers who decide which STOs
to fund and, consequently, who is eligible to receive STO-
provided scholarships according to the criteria of the desig-
nated STO.

   Defendants acknowledge the differences between parents’
choices under Section 1089 and those afforded under indirect
aid programs that the Supreme Court has previously upheld.
They contend, however, that because Section 1089 offers
“genuine and independent choices” to the taxpayers who fund
STOs, these differences are irrelevant to whether Section
1089 violates the Establishment Clause. We disagree.

  a.   Parental choice

   The parties do not contest that notwithstanding its structural
differences from indirect aid programs the Court has upheld,
4612          WINN v. ARIZONA CHRISTIAN SCHOOL
Section 1089 would satisfy the Establishment Clause if the
program made scholarships available to parents on a reli-
giously neutral basis and gave them a true private choice as
to where to utilize the scholarships. Plaintiffs allege, however,
this is not how the program works in practice. In Zelman, the
Court identified several circumstances relevant to whether the
indirect aid program at issue, which gave tuition grants to par-
ents to apply toward private and fee-charging public schools,
was “a program of true private choice . . . and thus constitu-
tional[:]”

    [T]he . . . program is neutral in all respects toward
    religion. It is part of a general and multifaceted
    undertaking . . . to provide educational opportunities
    to the children of a failed school district. It confers
    educational assistance directly to a broad class of
    individuals defined without reference to religion, i.e.,
    any parent of a school-age child who resides in the
    . . . School District. The program permits the partici-
    pation of all schools within the district, religious or
    nonreligious. Adjacent public schools also may par-
    ticipate and have a financial incentive to do so. Pro-
    gram benefits are available to participating families
    on neutral terms, with no reference to religion. The
    only preference stated anywhere in the program is a
    preference for low-income families, who receive
    greater assistance and are given priority for admis-
    sion at participating schools.

       There are no financial incentives that skew the
    program toward religious schools. Such incentives
    are not present . . . where the aid is allocated on the
    basis of neutral, secular criteria that neither favor
    nor disfavor religion, and is made available to both
    religious and secular beneficiaries on a nondiscrimi-
    natory basis.

Id. at 653-54 (emphasis added) (citations, alterations and
internal quotation marks omitted).
                 WINN v. ARIZONA CHRISTIAN SCHOOL                      4613
   y13Under this rubric, Section 1089 falls short. The vast
majority of the scholarship money under the program — over
85 percent as of the time of plaintiffs’ complaint — is avail-
able only for use at religious schools.14 Because this aid is
available only to parents who are willing to send their chil-
dren to a religious school, the program fails to “confer[ ] edu-
cational assistance directly to a broad class of individuals
defined without reference to religion.” Id. at 653. Moreover,
because a disproportionate amount of the program aid is ear-
marked for use at religious schools before parents receive the
aid, Section 1089 is not, from the parents’ perspective, “neu-
tral in all respects toward religion” and does not equally “per-
mit[ ] the participation of all schools . . . religious or
nonreligious” in the program. Id. Additionally, because Sec-
tion 1089 does not make aid equally available to parents “on
the basis of neutral, secular criteria that neither favor nor dis-
favor religion,” id. (alterations in original) (quoting Witters,
474 U.S. at 487-88), the program creates “ ‘financial incen-
tive[s]’ ” for parents that “ ‘ske[w]’ the program toward reli-
gious schools.” Id. (quoting Witters, 474 U.S. at 487-88); see
Zobrest, 509 U.S. at 10 (upholding program because it “cre-
ate[d] no financial incentive for parents to choose a sectarian
school”). Thus, parents who wish to place their children in a
private secular school, but who could not otherwise afford to
do so, are at a disadvantage compared to parents who are will-
ing to accept a scholarship for private religious schooling —
   14
      We recognize the Supreme Court in Mueller, 463 U.S. at 401, cau-
tioned that such statistics lack constitutional import when a law is facially
neutral. This case is different from Mueller, however, because Section
1089 does not allocate scholarship funds based on parents’ choices of
schools, but instead mediates financial aid through taxpayers’ allocations
to scholarship programs of their choice. As a result, a parent seeking
scholarship aid does not have a “genuine and independent private choice”
under the program because the parent’s choices are constrained by those
of taxpayers. Zelman, 536 U.S. at 652. Facts showing the skewed concen-
tration of funds in sectarian school scholarship programs would therefore
support the claim that parents are financially incentivized to choose a reli-
gious school.
4614             WINN v. ARIZONA CHRISTIAN SCHOOL
either by choice or out of financial necessity. Although par-
ents would, of course, have the option of leaving their chil-
dren in public school, we reject the suggestion that the mere
existence of the public school system guarantees that any
scholarship program provides for genuine private choice. For
parents wait-listed for scholarships to secular schools,15 the
range of educational choices the STO-administered scholar-
ship programs offer do not realistically include “obtain[ing] a
scholarship and choos[ing] a nonreligious private school.”
Zelman, 536 U.S. at 655. Section 1089, as applied, thereby
creates incentives that pressure these parents into accepting
one of the scholarships that are readily available under the
program for use at a religious school. Therefore, Section
1089, as applied, “fails to provide genuine opportunities for
. . . parents to select secular educational options for their
school-age children.” Id.

  b.    Taxpayer choice

   Defendants argue that despite this failure, Section 1089
does not violate the Establishment Clause because it provides
a tax credit to all Arizona taxpayers, without respect to reli-
gion, and gives taxpayers a genuine choice between directing
their money to religious or secular STOs. Therefore, as Zel-
man requires, “government aid reaches religious schools only
as a result of the genuine and independent choices of private
individuals.” Id. at 649. Plaintiffs do not contest that Section
1089 is neutral with respect to the taxpayers who direct
money to STOs, or that any of the program’s aid that reaches
  15
    Data in the record, the veracity of which defendants do not challenge,
show that in 2004, the Arizona School Choice Trust — the largest of the
STOs that provides scholarships to any private secular or religious school
— reported a waiting list of at least 700 students. If accurate, it would be
the kind of information that would further support plaintiffs’ allegation
that “parents choosing to send their children to non-religious, non-public
schools may be unable to locate an STO willing and able to make a tuition
grant to a student attending the non-religious school of the parents’
choice.”
              WINN v. ARIZONA CHRISTIAN SCHOOL             4615
a STO does so only as a result of the genuine and independent
choice of an Arizona taxpayer. See Mueller, 463 U.S. at 398-
99. Plaintiffs argue, however, that Section 1089 violates the
Establishment Clause precisely because the individual taxpay-
ers’ choices available under the program serve to restrict par-
ents’ opportunities to select secular educational options for
their school-age children, skewing parents’ incentives to send
their children to religious schools. As such, the program is not
“neutral in all respects toward religion” and, concomitantly,
is not a “program of true private choice.” Zelman, 536 U.S.
at 653.

   Defendants argue that it is irrelevant, under Zelman,
whether an indirect aid program offers true private choice to
parents, or instead, like Section 1089, offers true private
choice to another broadly defined class of individuals. In
describing what constitutes “true private choice,” however,
the Court in Zelman frequently emphasized that the choice is
one offered, on a neutral basis, to parents or students, as the
beneficiaries of the program’s aid. See, e.g., id. at 652 (“A
program . . . [like those the Court has upheld] permits govern-
ment aid to reach religious institutions only by way of the
deliberate choices of numerous individual recipients.”); id. at
653 (concluding one of the features of “true private choice”
in the Ohio voucher program is that “[p]rogram benefits are
available to participating families on neutral terms”); id. at
669 (O’Connor, J., concurring) (“Courts are instructed to con-
sider two factors: first, whether the program administers aid
in a neutral fashion, without differentiation based on the reli-
gious status of beneficiaries or providers of services; second,
and more importantly, whether beneficiaries of indirect aid
have a genuine choice among religious and nonreligious orga-
nizations when determining the organization to which they
will direct that aid.”). Defendants contend this emphasis is
simply because parental choice was the only private choice
offered under those programs.

  Defendants’ argument, however, disregards the Court’s
analysis of how the true private choice described in Zelman
4616           WINN v. ARIZONA CHRISTIAN SCHOOL
ensures that government aid flowing to religious institutions
does not have “the forbidden ‘effect’ of advancing . . . reli-
gion,’ ” id. at 649, even though the aid would have such an
effect under a program of direct funding. See Bowen, 487 U.S.
at 609-10 (noting “direct government aid” impermissibly
advances religion “if the aid flows to institutions that are ‘per-
vasively sectarian’ ”). The function of true private choice, the
Court explained, is to eliminate the perception that the gov-
ernment is endorsing religion through the money that is chan-
neled to sectarian institutions: “The incidental advancement
of a religious mission, or the perceived endorsement of a reli-
gious message, is reasonably attributable to the individual
recipient, not to the government, whose role ends with the dis-
bursement of benefits.” Zelman, 536 U.S. at 652. The Court
expressly linked its “true private choice” analysis to the “rea-
sonable observer” inquiry as to whether the government is
perceived to endorse the religious organizations that benefit
from its aid. See id. at 655 (holding, with respect to the paren-
tal choice the Court was addressing, that “no reasonable
observer would think a neutral program of private choice,
where state aid reaches religious schools solely as a result of
the numerous independent decisions of private individuals,
carries with it the imprimatur of government endorsement”).

   In drawing this link, the Court adopted Justice O’Connor’s
position in Mitchell v. Helms, 530 U.S. 793 (2000), that “ ‘[i]n
terms of public perception, a government program of direct
aid to religious schools . . . differs meaningfully from the gov-
ernment distributing aid directly to individual students who,
in turn, decide to use the aid at the same religious schools.’ ”
Zelman, 536 U.S. at 655 (quoting Mitchell, 530 U.S. at 842-
43 (O’Connor, J., concurring in judgment)). Under this frame-
work, the question central to the endorsement inquiry is
whether “the reasonable observer would naturally perceive
the aid program [in question] as government support for the
advancement of religion.” Mitchell, 530 U.S. at 843
(O’Connor, J., concurring in the judgment) (discussing effect
of programs providing direct aid to religious schools).
              WINN v. ARIZONA CHRISTIAN SCHOOL              4617
“ ‘[T]he reasonable observer in th[is] endorsement inquiry
must be deemed aware’ of the ‘history and context’ underly-
ing a challenged program.” Zelman, 536 U.S. at 655 (quoting
Good News Club v. Milford Cent. Sch., 533 U.S. 98, 119
(2001) (internal quotation marks omitted)); see also Capitol
Square Review and Advisory Bd. v. Pinette, 515 U.S. 753, 773
(1995) (O’Connor, J., concurring in part and concurring in
judgment) (“[T]he endorsement test necessarily focuses upon
the perception of a reasonable, informed observer.”) (empha-
sis added). We impute this knowledge to the reasonable
observer because “the endorsement inquiry is not about the
perceptions of particular individuals or saving isolated nonad-
herents from . . . discomfort,” but instead concerns “the politi-
cal community writ large.” Id. at 779; accord Good News
Club, 533 U.S. at 119 (adopting this position); see also Capi-
tol Square, 515 U.S. at 779-80 (O’Connor, J., concurring in
part and concurring in judgment) (“[T]he applicable observer
is similar to the ‘reasonable person’ in tort law, who is not to
be identified with any ordinary individual, who might occa-
sionally do unreasonable things, but is rather a personification
of a community ideal of reasonable behavior, determined by
the [collective] social judgment.”) (internal quotation marks
omitted; alteration in original).

   [14] Accordingly, to assess whether the taxpayer choice
offered under Section 1089 has the same constitutional effect
as the parental choice Zelman upheld, we must consider the
Court’s application of the reasonable observer inquiry to the
program at issue in that case. Specifically, we must consider
the circumstances the Court deemed relevant to why a reason-
able, informed observer looking at the program upheld in Zel-
man would conclude that “[t]he incidental advancement of a
religious mission, or the perceived endorsement of a religious
message” resulting from a program “is reasonably attributable
to the individual recipient, not to the government, whose role
ends with the disbursement of benefits.” 536 U.S. at 652. The
Court’s guidance in earlier cases also sheds light on two cir-
4618             WINN v. ARIZONA CHRISTIAN SCHOOL
cumstances that seemed particularly important to the reason-
able observer analysis in Zelman.

   First, a reasonable, informed observer would consider what
role the person making the choice occupies in the structure of
the program. See Larkin v. Grendel’s Den, Inc., 459 U.S. 116,
127 (1982) (holding statute allowing a church or school to
veto a liquor license for establishments in their proximity vio-
lated the Establishment Clause); Zelman, 536 U.S. at 652. In
Larkin, the Court determined there was no “ ‘effective means
of guaranteeing’ ” the veto power delegated to churches over
liquor licenses “ ‘[would] be used exclusively for secular,
neutral, and nonideological purposes.’ ” Id. at 125 (quoting
Nyquist, 413 U.S. at 780).16 “In addition,” the Court contin-
ued, “the mere appearance of a joint exercise of legislative
authority by Church and State provides a significant symbolic
benefit to religion in the minds of some by reason of the
power conferred.” Id. at 125-26. Of course, the delegation of
scholarship funding to individual taxpayers, such as in Sec-
tion 1089, does less to promote religion than the delegation of
zoning authority to churches. Larkin’s holding, however,
illustrates that when a statute delegates “a power ordinarily
vested in agencies of government” to a private party, see id.
at 122, without reasonable assurance that the party’s choices
will advance the secular purposes of the statute, any ensuing
“perceived endorsement of a religious message” may be “rea-
sonably attribut[ed]” to the government. See Zelman, 536 U.S.
at 652.
  16
    In Zelman, the Court held “Nyquist does not govern neutral educa-
tional assistance programs that, like the program here, offer aid directly to
a broad class of individual recipients defined without regard to religion.”
536 U.S. at 662. As discussed above, Section 1089 does not “offer aid
directly to individual recipients,” but rather mediates the aid through tax-
payers and STOs. Insofar as Section 1089 is not a “program of true private
choice,” within the meaning of Zelman, the Court’s holding in Nyquist is
relevant to determining whether a reasonable observer would conclude the
tax credit program endorses religion.
              WINN v. ARIZONA CHRISTIAN SCHOOL              4619
   By contrast, the educational assistance programs addressed
in Zelman were structured so that parents were permitted to
choose how to best use the program aid to assist their chil-
dren. The parents’ decisive role in the program gave them
incentives to apply the program’s aid based on their children’s
educational interests instead of on sectarian considerations,
such as whether to promote the religious mission of a particu-
lar school. Accordingly, by delegating a choice that “ensured
that parents were the ones to select a religious school as the
best learning environment” for their children, the government
did not appear to endorse religion. Id. (stating how federal
special education program providing sign-language interpreter
to student attending Catholic school ensured that “the circuit
between government and religion was broken, and the Estab-
lishment Clause was not implicated”).

   Second, a reasonable, informed observer would consider
whether the choice delegated under a program has the effect
of promoting, or hindering, the program’s secular purpose.
See id. at 655. In Larkin, the Court recognized that the statute
delegating veto power to churches and schools had the valid
secular purpose of “protect[ing] spiritual, cultural, and educa-
tional centers from the ‘hurly-burly’ associated with liquor
outlets.” 459 U.S. at 123 (internal quotation marks omitted).
The Court noted, however, that “these valid secular objectives
can be readily accomplished by other means,” id. at 123-24,
and that the veto power conferred by the statute could “be
used by churches to promote goals beyond insulating the
church from undesirable neighbors,” id. at 125. The Court
concluded that the delegation could “be seen as having a ‘pri-
mary’ and ‘principal’ effect of advancing religion.” Id. at 126.
Similarly, in Nyquist, the Court invalidated a program provid-
ing tuition grants and tax credits to parents sending their chil-
dren to private schools because, although the program had a
valid secular purpose, “the effect of the aid [wa]s unmistak-
ably to provide desired financial support for nonpublic, sec-
tarian institutions.” 413 U.S. at 783; see id. at 788 (“In its
attempt to enhance the opportunities of the poor to choose
4620          WINN v. ARIZONA CHRISTIAN SCHOOL
between public and nonpublic education, the State has taken
a step which can only be regarded as one ‘advancing’ reli-
gion.”). Nyquist illustrates that if an educational assistance
program provides individual choice through tax credits, but
those tax credits hinder the program’s ability to achieve its
valid secular goals, a reasonable observer could well conclude
that the tax credits are simply masking an Establishment
Clause violation. Cf. Hibbs v. Winn, 542 U.S. at 93-94 (dis-
cussing school desegregation cases invalidating use of tuition
grants and tax credits to circumvent Brown v. Board of Edu-
cation, 347 U.S. 483 (1954)); see also Bd. of Educ. of Kiryas
Joel v. Grumet, 512 U.S. 687, 690 (1994) (invalidating statute
creating school district coextensive with religious community
that had valid purpose of providing special education services,
but was unnecessarily tailored to promote sectarian aims);
Norwood v. Harrison, 413 U.S. 455, 465 (1973) ( “[I]t is . . .
axiomatic that a state may not induce, encourage or promote
private persons to accomplish what it is constitutionally for-
bidden to accomplish.”) (internal quotation marks omitted)
(invalidating state program providing textbooks to racially
discriminatory private schools).

   [15] The choices delegated to parents under Zelman, by
contrast, may have advanced — and at least did not thwart —
the secular purpose of the program, which was to “provid[e]
educational assistance to poor children in a demonstrably fail-
ing public school system.” 536 U.S. at 649. The best educa-
tional environment for a particular child within a failed school
system may depend on qualitative considerations that could
not easily be assessed at a policymaking level. See, e.g., id.
at 674-75 (O’Connor, J., concurring) (suggesting metrics
other than formal academic achievement that may play a role
in parents’ educational choices in a failed school district). The
choice offered under the program may have therefore helped
ensure that the program achieved its secular aims by delegat-
ing funding decisions to a class of persons — parents — who
were better positioned than a state policymaking body to
                WINN v. ARIZONA CHRISTIAN SCHOOL                   4621
make educational choices for individual students in a failing
school system.

   [16] Drawing upon these two circumstances — the role the
person making the choice occupies in the structure of a pro-
gram and whether delegating the choice promotes the secular
purpose of the program — we turn to defendants’ argument
that the individual, taxpayer choice provided under Section
1089 necessarily has the same constitutional effect as the
parental choice upheld in Zelman. Under Section 1089, indi-
vidual taxpayers may constrain the scholarship options of
other parents’ children by choosing to direct their state-
reimbursed contributions to sectarian STOs. Yet unlike par-
ents, whose choices directly affect their children, taxpayers
have no structural incentives under Section 1089 to direct
their contributions primarily for secular reasons, such as the
academic caliber of the schools to which a STO restricts aid,
rather than for sectarian reasons, such as the religious mission
of a particular STO. Thus, the taxpayers’ position in the struc-
ture of Section 1089 provides no “ ‘effective means of guar-
anteeing’ ” that taxpayers will refrain from using the program
for sectarian purposes. Larkin, 459 U.S. at 125 (quoting
Nyquist, 413 U.S. at 780). Significantly, plaintiffs’ allegations
suggest the taxpayers’ role in the structure of Section 1089,
as applied, encourages them to use the tax credits to promote
sectarian goals, and that taxpayers have in fact used the pro-
gram aid to this end.

   [17] Relatedly, the taxpayer choice provided under Section
1089 does little to advance — indeed, it appears to thwart —
the secular purpose of the program, which is to provide equal
access to a wide range of schooling options for students of
every income level by defraying the costs of educational
expenses incurred by parents.17 Defendants do not suggest
  17
     Even if we assumed that taxpayer choice does, in some respect,
advance the secular objectives of Section 1089, plaintiffs may be able to
demonstrate that “these valid secular objectives can be readily accom-
plished by other means,” and therefore that the program nevertheless
“could be seen as having a ‘primary’ and ‘principal’ effect of advancing
religion.” Larkin, 459 U.S. at 123-24, 126.
4622             WINN v. ARIZONA CHRISTIAN SCHOOL
taxpayers are better positioned than government administra-
tors to allocate program aid in a manner that will expand
schooling options, and plaintiffs’ allegations suggest the
demand for STO-provided scholarships available for use at
secular schools markedly outstrips their supply. This mis-
alignment between parents’ interests and taxpayers’ desires
suggests that by vesting individual taxpayers with funding
authority, Section 1089’s design works against its purpose of
providing Arizona students with equal access to a wide range
of schooling options. Although Section 1089 leaves individual
parents free to create new STOs that cater to their educational
preferences, this freedom provides little benefit to parents
who do not have the time or capital to get others to support
their STO, given that these parents cannot use their tax credits
to fund scholarships for their own children.

   [18] Accordingly, we conclude that there is a meaningful
constitutional distinction between the individual, taxpayer
choice provided under Section 1089 and the parental choice
upheld in Zelman.18 Section 1089, as claimed to operate in
practice, is not a program of true private choice, immune from
further constitutional scrutiny. We therefore hold that plain-
tiffs have alleged facts upon which a reasonable, informed
observer could conclude that Section 1089, as applied, vio-
lates the Establishment Clause even though the state does not
directly decide whether any particular sectarian organizations
will receive program aid.
  18
     In Green v. Garriott, ___ P.3d ___, 2009 WL 623346 (Ariz. Ct. App.
March 12, 2009), the Arizona Court of Appeals in a 2-1 decision rejected
an Establishment Clause challenge to Ariz. Rev. Stat. § 43-1183, which
gives dollar-for-dollar tax credits to corporations for contributions to
STOs. The Green majority did not consider, as we do here, whether any
lack of religious neutrality in the actual operation of Section 1183 “carries
with it the imprimatur of government endorsement,” Zelman, 536 U.S. at
655, and we are unpersuaded by the analysis of whether § 1183 is a pro-
gram of “true private choice” for the reasons we have already discussed
at length.
              WINN v. ARIZONA CHRISTIAN SCHOOL             4623
  The district court’s order dismissing plaintiffs’ complaint is
reversed and remanded for further proceedings consistent
with this opinion.

  REVERSED and REMANDED for further proceedings.
