The Supreme Court just made big waves for religious rights: it unanimously ruled that a Wisconsin Catholic charity qualifies for a tax exemption. This overturns a Wisconsin Supreme Court ruling denying the charity the religious exemption for essentially not being religious enough.
Catholic Group Claims Tax Exemption
Wisconsin law provides an exemption from paying taxes into the state's unemployment compensation system for certain religious organizations. Specifically, it exempts nonprofit entities that are "operated primarily for religious purposes" and controlled by a church or association of churches, as defined under state code.
Catholic Charities Bureau and four of its sub-entities are controlled by the Roman Catholic Diocese of Superior, Wisconsin. Catholic Charities Bureau serves as the social ministry arm of the Diocese and is dedicated to providing services to disadvantaged individuals without discrimination based on race, sex, or religion. Despite its religious motivations and control by the Diocese, petitioners do not engage in proselytization nor restrict their charitable services exclusively to Catholics due to Catholic doctrine prohibiting such practices.
Catholic Charities Bureau claimed the tax exemption from the Wisconsin Department of Workforce Development, but their request was denied. They appealed that decision in state courts, a case which made its way to the Wisconsin Supreme Court.
From State to Federal Court
The Wisconsin Supreme Court held that the decision to deny the exemption request was correct because it determined that the Bureau and its sub-entities were not "operated primarily for religious purposes" as required by the statute for exemption. The court concluded that although the organizations professed a religious motivation, their activities, which included providing job training, job placement, and services to those with developmental or mental health issues, were primarily charitable and secular in nature. Therefore, they did not qualify for the religious-purposes exemption under the Act.
For Wisconsin state law, the state Supreme Court is where the buck stops. The only way to do anything about an adverse decision in state court is to run to federal court, but that can be hard due to jurisdictional limitations. Federal courts, like the U.S. Supreme Court, don’t have the jurisdiction to hear cases based on state law, and the original case was brought under the Wisconsin tax exemption law. But the plaintiffs managed to turn their denial by the Wisconsin Supreme Court into a claim under federal law: the U.S. Constitution.
Specifically, the plaintiffs framed their appeal to SCOTUS as a question of the interpretation and application of the First Amendment. The plaintiffs argued that the Wisconsin Supreme Court's decision violated their First Amendment rights by imposing a denominational preference through its interpretation of the state’s tax exemption statute. This raised an important federal question regarding government neutrality, so it was appropriate to bring before SCOTUS. The high court thus granted cert to review whether the Wisconsin Supreme Court's decision was consistent with federal constitutional principles.
SCOTUS Gives Its Blessing to Catholic Group
Lucky for the Catholic plaintiffs, SCOTUS took their side.
The Court analyzed the issue under two important considerations: (1) the First Amendment's mandate for government neutrality between religions, and (2) the principle that any state-sponsored denominational preference is subject to strict scrutiny. Looking at the first, the Court found that the Wisconsin Supreme Court's interpretation of the law illegally prioritized some faiths or denominations over others. This was because the eligibility for the exemption turned on inherently religious choices (such as whether to proselytize or serve only co-religionists) rather than on secular criteria that might incidentally affect different religious organizations.
Because of this, the law was subject to strict scrutiny; Wisconsin has to show that the law is narrow enough to serve whatever it’s meant to do. Wisconsin claimed that the exemption served two principal interests: ensuring unemployment coverage for its citizens and avoiding entanglement with employment decisions based on religious doctrine. But the Catholic groups operated their own unemployment compensation system, which provided benefits largely equivalent to the state system.
Furthermore, Wisconsin's law was both underinclusive and overinclusive. It was underinclusive because it exempted religious entities that provided similar services without proselytizing or serving only co-religionists when the work was done directly by a church. It was overinclusive because it applied at an organizational level, covering all employees equally, regardless of their involvement in religious activities.
Decision and Reactions
SCOTUS thus concluded that the mismatch between the Wisconsin’s asserted interests and the statute could not satisfy strict scrutiny. The Court struck down the tax exemption law as unconstitutional. Although the decision was unanimous, Justices Thomas and Jackson wrote concurring opinions that provided additional perspectives.
Justice Thomas's concurrence argued that the Wisconsin Supreme Court erred by failing to recognize Catholic Charities and its sub-entities as an arm of the Diocese of Superior, thereby violating the church autonomy doctrine by treating them as separate entities based solely on their corporate form. The church autonomy doctrine is a principle derived from the First Amendment's Religion Clauses, which guarantees religious institutions broad autonomy to conduct their internal affairs and govern themselves without state interference. This doctrine provides that a religious institution is not defined by the corporate entities it chooses to form. It protects the right of religious organizations to organize voluntary associations, decide matters of church government, and resolve issues of faith and doctrine independently. It acknowledges the separation between church and state as distinct spheres of authority, each supreme in its own domain, and ensures that civil courts do not exercise jurisdiction over ecclesiastical matters or interfere with the internal governance of religious institutions.
Justice Jackson opined that the Federal Unemployment Tax Act's (FUTA) should be used as a guideline. FUTA has a religious-purposes exemption similar to Wisconsin’s, but it focuses on the function of an organization rather than its motivations. Justice Jackson recommended that states should align their religious-purposes exemptions with the FUTA. Namely, that Wisconsin’s exemption should turn on what an entity does—its function—rather than its motivations or whether it engages in proselytization or serves co-religionists exclusively. This approach would better serve the anti-entanglement objective by focusing on entities whose work involves preparing individuals for religious life, thereby avoiding potential entanglement issues in unemployment adjudications.
The Ethics & Religious Liberty Commission, who was representing the plaintiffs, celebrated the decision as a victory. Their president said in a press release: “When the state tries to define what constitutes religious ministry and activity, it is not only working well beyond its boundaries, it is trampling all over the First Amendment. This is the main takeaway from today’s unanimous Supreme Court decision; one that should hearten Southern Baptists and anyone who cares about our fundamental freedoms. This case involved an egregious attempt in Wisconsin to dictate how religious organizations should be structured or what … their faith should look like.”
Related Resources:
- Tie in Supreme Court Ruling Denies Religious Charter School Access to Taxpayer Funding (FindLaw's Federal Courts)
- SCOTUS Sides With Freedom of Religion in Battle Between First and Fourteenth Amendments (FindLaw's Federal Courts)
- The First Amendment's Free Exercise Clause: Overview (FindLaw's U.S. Constitution Pages)
