Can States Judge Faith – Or Just Tax It?

The Supreme Court unanimously ruled that Wisconsin violated religious freedom by denying Catholic Charities a tax exemption that it grants to other religious organizations.

At a Glance 

  • Supreme Court’s 9-0 decision overturned Wisconsin’s denial of unemployment tax exemption to Catholic Charities Bureau
  • Justice Sonia Sotomayor wrote that Wisconsin’s actions constituted unconstitutional religious discrimination
  • Wisconsin denied the exemption because Catholic Charities serves non-Catholics and doesn’t proselytize
  • The Court ruled that denying exemptions based on theological differences violates First Amendment protections
  • The case has been sent back to state courts for further proceedings consistent with the ruling

First Amendment Victory for Religious Organizations

In a significant win for religious liberty, the Supreme Court unanimously ruled that the State of Wisconsin violated constitutional protections when it denied the Catholic Charities Bureau of the Diocese of Superior an exemption from unemployment compensation taxes. 

The decision, released Thursday, overturned the Wisconsin Supreme Court’s earlier ruling that had determined the Catholic organization was not operating “primarily for religious purposes” despite being controlled by the Roman Catholic Diocese of Superior. The high court’s decision affirms that religious liberty extends beyond church services to include charitable work performed as an expression of faith. 

Wisconsin law exempts religious organizations from unemployment taxes if they are “operated primarily for religious purposes” and supported by a church. State officials denied Catholic Charities this exemption because the organization serves people regardless of their faith and does not engage in proselytizing. Justice Sonia Sotomayor, writing for the Court, explained that this distinction created an unconstitutional religious preference by penalizing Catholic organizations for following their theological approach to charity work. 

Religious Discrimination Through Taxation

At the heart of the case was Wisconsin’s attempt to define what constitutes “religious purposes” in a way that disadvantaged Catholic teachings. The Wisconsin Supreme Court had previously ruled that Catholic Charities didn’t qualify for the exemption because it didn’t limit its services to Catholics or attempt to convert those it served. This directly conflicts with Catholic teaching, which explicitly prohibits using charity as a means of proselytism. The Court recognized that the state’s standard effectively discriminated against religious organizations based on their theological approach to charity.

“It is fundamental to our constitutional order that the government maintain ‘neutrality between religion and religion,” Justice Sonia Sotomayor wrote in the opinion. 

The Court applied strict scrutiny to Wisconsin’s tax scheme, finding it was both under-inclusive by exempting some religious organizations while excluding others, and overi-nclusive by potentially exempting organizations that are minimally religious but engage in proselytizing. This inconsistent application reinforced the Court’s view that the state was impermissibly distinguishing between religions based on their theological practices rather than applying a neutral standard. 

Affirming Religious Autonomy

Justice Clarence Thomas wrote a concurring opinion highlighting that the Wisconsin Supreme Court failed to recognize Catholic Charities as an integral part of the Diocese, which violated the church autonomy doctrine. Similarly, Justice Ketanji Brown Jackson concurred, noting that federal unemployment tax exemptions focus on an organization’s religious functions rather than its motivations. These concurrences emphasized that courts should not be in the business of evaluating the religious authenticity of faith-based activities.

“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,” Justice Sotomayor wrote. 

Eric Rassbach, who represented Catholic Charities Bureau, emphasized that the ruling “reaffirms the core First Amendment principle that government cannot prefer or favor any one religion over another.” The decision protects the rights of religious groups to serve the needy according to their beliefs without government interference. By remanding the case for further proceedings, the Supreme Court has instructed Wisconsin courts to reconsider the tax exemption application without the previously applied denominational bias. 

Victory for Religious Liberty Beyond Political Divides

The 9-0 decision demonstrates that religious liberty protections transcend political divisions on the Court. The case, Catholic Charities Bureau v. Wisconsin Labor and Industry Review Commission, No. 24-154, serves as a reminder that the First Amendment’s religious freedom guarantees remain strong. For religious conservatives, the ruling reinforces that charitable works motivated by faith deserve the same constitutional protections as more traditional expressions of religion like worship services or prayer. 

“A law that differentiates between religions along theological lines is textbook denominational discrimination,” Justice Sonia Sotomayor explained in the Court’s opinion. 

This landmark decision will likely have implications for other religious organizations facing similar challenges from state tax authorities. By recognizing that charity work constitutes a legitimate religious purpose even when not coupled with evangelization, the Court has expanded protections for faith-based service organizations across denominations. The ruling sends a clear message that government officials cannot impose their own definitions of religious practice or purpose when those definitions conflict with an organization’s sincere religious beliefs.

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