Wisconsin Supreme Court Rules Catholic Charities May Not Claim Religious Tax Exemption

A man holds rosary beads outside a U.S. Catholic church. Rob Carr/Getty Images

The Wisconsin Supreme Court ruled on March 14 that a major Catholic Charities organization and four nonprofits affiliated with the agency must pay into the state unemployment insurance system.

In a 4–3 decision, the liberal majority of the court rejected arguments made by Catholic Charities Bureau Inc. for the Superior Diocese of the Catholic Church that they should be exempt from the state’s Unemployment Compensation Act.

That charity—which provides job placement, job coaching, and various services to assist individuals with disabilities in getting employment in the community—filed the lawsuit last year after the state said it did not qualify to be considered an organization “operated primarily for religious purposes.”

Wisconsin law requires employers to pay an unemployment tax that is used to fund benefits for workers when they’re out of work, allowing time for them to find another job.

In their lawsuit, the Catholic Charities Bureau pointed to a phrase in Wisconsin law exempting religious organizations from the tax.

The rule applies to “an organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches” or “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,” according to state law.

Activities Not ‘Primarily’ Religious

Religious groups from across the nation had submitted court filings in support of the charities in the case, including the Jewish Coalition for Religious Liberty, Sikh Coalition, International Society for Krishna Consciousness, and the Minnesota-Wisconsin Baptist Convention.

However, the state Supreme Court also said the Catholic charity group’s activities and those of its subentities—Barron County Developmental Services Inc., Diversified Services Inc., Black River Industries Inc., and Headwaters Inc.—were not “primarily” religious under state law, and they were thus not exempt from paying into the state’s unemployment insurance system.

A state appeals court ruled in February 2023 that the subentities failed to show their activities were motivated by religion.

In its majority opinion, Justice Ann Walsh Bradley said the court accepts the mission of the Catholic Charities Bureau and its subsidiaries, which is to “carry on the redeeming work of our Lord by reflecting gospel values and the moral teaching of the church.”

However, Justice Bradley wrote that “both the motivations and activities” of an organization must be examined to determine if they operate primarily for religious purposes and are thus entitled to exemption from unemployment tax.

“An objective examination of the actual activities of CCB and the sub-entities reveals that their activities are secular in nature,” Justice Bradley wrote. “We therefore conclude that CCB and the sub-entities are not operated primarily for religious purposes.”

Court Got Case ‘Dead Wrong’

However, Justice Rebecca Grassl Bradley wrote a 73-page dissent in which she said the majority opinion was a “misinterpretation of the exemption” that renders the statute in violation of both the U.S. Constitution’s First Amendment protection of religious freedom and the Wisconsin Constitution.

“An examination of the statute’s language unencumbered by the majority’s policy agenda shows Catholic Charities are operated for religious purposes and entitled to the exemption,” she wrote.

Chief Justice Annette Ziegler also dissented.

In an emailed statement to Courthouse News Service, Eric Rassbach, the senior counsel and vice president of the Washington-based Becket Fund for Religious Liberty, which represented the bureau, said the Wisconsin Supreme Court “got this case dead wrong.”

“[The bureau] is religious, whether Wisconsin recognizes that fact or not. We plan to appeal this decision to the United States Supreme Court to protect [the bureau’s] good deeds,” Mr. Rassbach said.

The Associated Press contributed to this report.