Catholic Charities Prevails in Wisconsin Tax Exemption Case

The U.S. Supreme Court unanimously ruled June 5 that a Wisconsin unemployment compensation tax exemption that was denied to Catholic Charities Bureau violated the First Amendment. More than 40 states have similar exemptions, the Supreme Court noted.

“It is fundamental to our constitutional order that the government maintain neutrality” among religions, the Supreme Court said. “There may be hard calls to make in policing that rule, but this is not one. When the government distinguishes among religions based on theological differences in their provision of services, it imposes a denominational preference that must satisfy the highest level of judicial scrutiny.”

Wisconsin has violated that principle, the court determined.

How-To Guide: Contesting Unemployment Claims

Neutrality Wasn’t Maintained

Wisconsin law requires most employers to make regular contributions to the state’s unemployment fund through payroll taxes. Nonprofit employers may choose between contributing to that fund or reimbursing the state for benefits paid to their laid-off employees.

Wisconsin’s religious exemption to the contribution requirement applies to any “church or convention or association of churches” and to services provided “by a duly ordained, commissioned or licensed minister of a church in the exercise of his or her ministry or by a member of a religious order in the exercise of duties required by such order.”

When Catholic Charities asked for the religious-employer exemption to be applied, the Wisconsin Department of Workforce Development denied the request. The department acknowledged that Catholic Charities is supervised and controlled by the Roman Catholic Church, but determined that Catholic Charities is not operated primarily for religious purposes within the meaning of the statute.  

When Catholic Charities’ appeal of this denial ultimately reached the Wisconsin Supreme Court, the court affirmed the denial. The deciding question, according to that court, was whether Catholic Charities is operated primarily for religious purposes. To make this determination, courts should focus on whether an organization participates in worship services, religious outreach, ceremonies, or religious education, the Wisconsin Supreme Court held. Applying that standard, it ruled that Catholic Charities’ activities are secular, not religious.

Catholic Charities does not attempt to convert participants to the Catholic faith, nor does it supply any religious materials to program participants or employees, the court noted. 

Religious doctrine prohibits Catholic bodies from “misusing works of charity for purposes of proselytism,” Catholic Charities stated. Evangelizing, or sharing one’s faith, by contrast, is permitted, it asserted.

Toolkit: Managing Unemployment Compensation Costs

‘Textbook Denominational Discrimination’

“A law that differentiates between religions along theological lines is textbook denominational discrimination,” the U.S. Supreme Court said. “This case involves that paradigmatic form of denominational discrimination.”

The court noted that while many religions impose similar rules prohibiting proselytization in the provision of charitable services, others have adopted a contrary approach.

“Wisconsin’s exemption, as interpreted by its Supreme Court, thus grants a denominational preference by explicitly differentiating between religions based on theological practices,” the U.S. Supreme Court said. Catholic Charities’ “eligibility for the exemption ultimately turns on inherently religious choices — namely whether to proselytize or serve only co-religionists — not secular criteria that happen to have a disparate impact upon different religious organizations.”

The court noted that Catholic Charities operates its own unemployment compensation system for employees, which provides benefits largely equivalent to the state system.

This decision is Catholic Charities Bureau v. Wisconsin Labor and Industry Review Commission.