PHOENIX - A year-old law letting corporations divert income tax obligations to help students attend private and parochial schools is constitutional, a judge ruled Wednesday.

Maricopa County Superior Court Judge Janet Barton said the credit approved by lawmakers last year is "legally indistinguishable'' from one already available to individuals. And the judge noted the Arizona Supreme Court upheld the legality of that credit six years ago.

That, said Barton, leaves her no choice but to throw out th lawsuit brought by foes of the new credit. Attorney Marvin Cohen who represents the challengers said the decision will be appealed. He said there are sufficient legal differences between the two credits to allow a judge to conclude the new one is illegal.

But Cohen conceded he and his clients, including Arizona School Boards Association, believe the original 1999 Supreme Court decision was wrong.

Under current law, individuals are entitled to a dollar-for-dollar credit against state income taxes they owe for donations to organizations that provide scholarships for student to attend private and parochial schools.

That credit is capped at $500 for people filing as single or married but filing a separate return, and $1,000 for couples.

There is no limit to the total amount people can divert.

In 2005 nearly $42.2 million was claimed, an increase of more than 32 percent over 2004. No figures will be available for 2006 until people file their tax returns this April.

Last year, hoping to generate more funds, legislators agreed to give corporations tax credits for money given to the scholarship organizations.

But to quell political opposition, especially from Gov. Janet

Napolitano, lawmakers agreed to a $10 million annual limit, with future increases of 20 percent per year for five years. And most of the scholarships made available because of the new cas infusion have to go to those whose parents' income meets certai restrictions.

According to the Department of Revenue, corporations this budget year already have claimed $7.4 million in credits. Cohen said the wording of the 2006 law specifically acknowledged that corporations are supposed to pay the income taxes they owe.

And the law then diverts some of those tax dollars - money otherwise owed the state - to let students attend private and parochial schools.

And he pointed out the state constitution specially says that "no tax shall be laid ... in aid of any church, or private or sectarian school.''

Barton, however, said as long as the state's high court has no problem with the individual tax credits, she cannot conclude the new corporate credits are unconstitutional.

Wednesday's ruling was praised by several Republican legislator who supported last year's bill.

"This is a victory in the sense that it encourages businesses to help provide money for scholarships so Arizona's schoolchildren can get the best education they can without government intrusion,'' Senate President Tim Bee said in a prepared statement.

And Rep. Andy Biggs, R-Gilbert, also in a statement, said the program "allows thousands of children to have educational choices without creating an impossible financial burden for thei parents.''