Decade-Long Catholic Charities Tax Exemption Battle Culminates in Religious Liberty Win at SCOTUS
In a unanimous decision touted as a religious liberty victory, the U.S. Supreme Court has sided with a Wisconsin-based Catholic charitable organization in a tax exemption status dispute, overruling the state’s supreme court. On Thursday, all nine justices of the nation’s highest court sided with Catholic Charities of the Catholic Diocese of Superior, determining that the Wisconsin Supreme Court had unconstitutionally barred the Catholic agency from a tax-exempt status on religious grounds.
“The First Amendment mandates government neutrality between religions and subjects any state-sponsored denominational preference to strict scrutiny,” wrote Justice Sonia Sotomayor, a Democrat appointee and self-described Catholic, in the majority opinion. She explained that the Wisconsin Supreme Court’s interpretation of relevant statutes “imposed a denominational preference by differentiating between religions based on theological lines. Because the law’s application does not survive strict scrutiny, it cannot stand.”
In a statement shared with The Washington Stand, Superior Diocese’s Bishop James Powers said, “At the heart of Catholic Charities’ ministry is Christ’s call to care for the least of our brothers and sisters, without condition and without exception.” He continued, “We’re grateful the court unanimously recognized that improving the human condition by serving the poor is part of our religious exercise and has allowed us to continue serving those in need throughout our diocese and beyond.”
In 1972, as TWS previously reported, a Wisconsin labor board classified the work of Catholic Charities as “charitable,” “educational,” and “rehabilitative,” not “religious,” and determined that the agency is not, therefore, exempt from a state unemployment tax. A county court, however, decided in 2015 that a subsidiary of Catholic Charities was eligible for the tax exemption, citing its work as religiously motivated. Catholic Charities subsequently sought a similar classification from the state’s Department of Workforce Development (DWD), which denied the request, and thus ensued a decade of litigation and conflicting court opinions and decisions.
The Wisconsin Supreme Court ruled early last year that Catholic Charities is not exempt from paying state unemployment taxes, disregarding the religious motivation of the Catholic Diocese of Superior in operating Catholic Charities and examining instead the actual work done by the charity, effectively deciding that a religious motivation in carrying out charitable work does not necessarily classify the charity as a religious organization unless that charitable work either explicitly seeks to preach to those it aids or only aids those of its own religion. “The record demonstrates that [Catholic Charities and its subsidiaries] neither attempt to imbue program participants with the Catholic faith nor supply any religious materials to program participants or employees,” the court explained, adding, “Both employment with the organizations and services offered by the organizations are open to all participants regardless of religion.”
In its subsequent appeal to the U.S. Supreme Court, Catholic Charities asked, “Does a state violate the First Amendment’s Religion Clauses by denying a religious organization an otherwise-available tax exemption because the organization does not meet the state’s criteria for religious behavior?” The Supreme Court determined Thursday that such a state does, in fact, violate the First Amendment. “It is fundamental to our constitutional order that the government maintain ‘neutrality between religion and religion.’ … There may be hard calls to make in policing that rule, but this is not one,” Sotomayor wrote for the Supreme Court.
She continued, “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.” Because Wisconsin’s top court “transgressed that principle without the tailoring necessary to survive such scrutiny, the judgment of the Wisconsin Supreme Court is reversed.”
Eric Rassbach, vice president and senior counsel at the Becket Fund for Religious Liberty, which represented Catholic Charities in the case, said in comments to TWS, “Wisconsin shouldn’t have picked this fight in the first place.” He explained, “It was always absurd to claim that Catholic Charities wasn’t religious because it helps everyone, no matter their religion. Today, the court resoundingly reaffirmed a fundamental truth of our constitutional order: the First Amendment protects all religious beliefs, not just those the government favors.”
Justice Clarence Thomas, a devout Catholic and the Supreme Court’s longest-serving member, wrote in a concurring opinion, “The First Amendment’s guarantee of church autonomy gives religious institutions the right to define their internal governance structures without state interference.” Turning to the organization of the Catholic Church in the U.S. and the organization of Catholic dioceses, he continued:
“Religious institutions may create different corporate entities to help manage their temporal affairs, but those entities do not define the broader religious institution’s internal structure. Here, although Catholic Charities and its subentities are separately incorporated from the Diocese of Superior, they are, as a matter of church law, simply an arm of the Diocese.”
“The church autonomy doctrine has important ramifications for the incorporation of religious institutions. Establishing corporate entities is essential for religious institutions to manage their temporal affairs,” Thomas explained. He clarified, “But, the doctrine forbids treating religious institutions as nothing more than the corporate entities that they form.” Thomas concluded, “The Court correctly holds that Catholic Charities and its subentities have suffered unconstitutional religious discrimination even on the assumption that those entities should be considered in isolation.” He added, “I would reverse for an additional reason — that the Wisconsin Supreme Court violated the church autonomy doctrine. … The Wisconsin Supreme Court should have deferred to that understanding, and its failure to do so amounted to an unlawful attempt by the State to redefine the Diocese’s internal governance.”
Even Justice Ketanji Brown Jackson, a Biden appointee considered the most progressive member of the Supreme Court, sided with Catholic Charities, joining the majority’s opinion “in full” and penning her own concurring opinion. Although the youngest judge on the Supreme Court wrote separately to take issue with an argument advanced by President Donald Trump’s administration in an amicus brief, she did state that the Federal Unemployment Tax Act (FUTA) “does not distinguish between charitable organizations based on their engagement in proselytization or their service to religious adherents.”
S.A. McCarthy serves as a news writer at The Washington Stand.