WASHINGTON, D.C. — In a case that could have far-reaching implications for how religious organizations are treated under state tax laws, the U.S. Supreme Court on Monday appeared inclined to side with Catholic-affiliated charitable groups seeking a religious exemption from a Wisconsin state tax that funds unemployment benefits.
During oral arguments, justices across the ideological spectrum expressed concern that the Wisconsin state government had unfairly denied the exemption to organizations affiliated with the Catholic Church, thus potentially violating the Constitution’s First Amendment free exercise clause.
The dispute stems from a ruling by the Wisconsin Supreme Court, which upheld the state’s decision that certain nonprofit organizations linked to the Catholic Charities Bureau of the Diocese of Superior did not qualify as “religious” enough to merit the same exemption granted to churches and other faith-based entities.
The organizations involved — Headwaters, Barron County Developmental Services, Diversified Services, and Black River Industries — primarily serve individuals with developmental disabilities. Though affiliated with the Catholic Church, these groups provide their services to people regardless of religious background and do not engage in active proselytizing or distribute religious materials during their services.
Despite their connection to the Diocese and religious mission, the state ruled that their operations were not “primarily religious in purpose,” disqualifying them from exemption from unemployment assistance taxes.
The Wisconsin Labor and Industry Review Commission originally made the determination, and the Wisconsin Supreme Court upheld it, stating that the organizations’ activities were mostly secular in nature and did not involve direct efforts to spread the Catholic faith.
However, during Monday’s U.S. Supreme Court arguments, both liberal and conservative justices voiced deep skepticism about the state’s rationale.
Concern Over Unequal Religious Treatment
Justice Elena Kagan, considered part of the court’s liberal wing, questioned whether Wisconsin’s current method of evaluating religious purpose amounts to discrimination between faiths.
“I thought it was pretty fundamental that we don’t treat some religions better than other religions,” she said, underscoring the central role that religious neutrality plays in the First Amendment.
Her concern was echoed by Justice Neil Gorsuch, a conservative, who said: “Isn’t it a fundamental premise of our First Amendment that the state shouldn’t be picking and choosing between religions?”
Gorsuch took issue with the idea that religious groups would be evaluated based on whether or not they engage in proselytizing, noting that this standard favors certain denominations over others. “Doesn’t it entangle the state tremendously when it has to go into a soup kitchen, send an inspector in, to see how much prayer is going on?” he asked, highlighting the potential constitutional problem of government entanglement with religion.
First Amendment and Free Exercise Clause
At the heart of the case is the First Amendment’s Free Exercise Clause, which prohibits the government from interfering with religious practice. For decades, courts have ruled that religious institutions should be exempt from certain taxes and regulations when such impositions would impede religious expression or entangle the state with religion.
In this instance, however, the Wisconsin state government has argued that only organizations operating with the primary purpose of religious instruction or worship should qualify for the exemption. Since the Catholic-affiliated nonprofits serve the general public, including non-Catholics, and do not actively evangelize, the state does not view their operations as religious enough.
Critics argue that this reasoning creates a biased litmus test, effectively privileging certain expressions of faith over others.
Broad Implications for Religious Organizations
The Supreme Court’s decision could reverberate well beyond Wisconsin. Similar unemployment tax systems and religious exemptions exist in many states and under the federal Unemployment Tax Act. If the high court sides with the Catholic organizations, it could broaden the scope of what qualifies as religious activity under exemption laws.
Several religious liberty advocacy groups and organizations across denominations have filed amicus briefs in support of the Catholic groups, warning that a failure to protect these organizations could open the door to greater government control over religious expression.
In a surprising twist, even the Trump administration, which has often aligned with conservative religious values, submitted a brief supporting the Catholic groups.
“The Constitution does not permit states to second-guess religious organizations about the religious nature of their missions,” one brief stated.
A Divided Lower Court, a Decisive High Court?
The Wisconsin Supreme Court had defended its stance by asserting that the exemption should be narrowly applied to entities that explicitly “imbue participants with religious belief.” The court found that these Catholic-affiliated nonprofits did not meet this criterion.
But during the federal Supreme Court session, multiple justices criticized that standard as overly intrusive. They worried that requiring the state to assess the degree of religious instruction or prayer at an organization invites excessive governmental scrutiny and threatens religious autonomy.
This latest case follows a series of rulings in recent years where the court has taken a strong stance in favor of religious freedom. From public prayer in schools to state-funded vouchers for religious schools, the current 6-3 conservative majority has been consistent in extending protections under the Free Exercise Clause.
Legal scholars expect a ruling sometime before July 2025. If the court rules in favor of the Catholic groups, it could establish a new benchmark for what constitutes “religious purpose” in American law.
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