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Catholic Charities Bureau, Inc. v. Wisconsin Labor and Industry Review Comm’n., Docket No. 24-154

This case turns on a subtle point in the law: can a faith-based charity get the same tax break as any other charity even if it doesn’t push its faith or limit help to fellow believers? On June 5, the Supreme Court said yes. It unanimously found that Wisconsin ran afoul of the First Amendment by treating Catholic Charities differently just because they didn’t proselytize or serve only Catholics. The state court’s rule drew a line between religions based on how they practice their beliefs, triggering the toughest review—and Wisconsin couldn’t show a strong enough reason. The decision sends the case back to state court and leaves open big questions about how far government can go when it comes to faith-based service groups.

Summary of the Case

In 2016, Catholic Charities Bureau, Inc., and four affiliated nonprofit organizations (collectively "Catholic Charities") applied to Wisconsin's Department of Workforce Development for an exemption from state unemployment-compensation taxes. Wisconsin law allows nonprofits that are "operated primarily for religious purposes" and "operated, supervised, controlled, or principally supported by a church" to opt out of the state unemployment system. However, the department—and ultimately the Wisconsin Supreme Court—denied the exemption, reasoning that Catholic Charities, though under the Diocese of Superior's authority, didn't engage in "distinctively religious" activities like proselytizing or limiting services to fellow Catholics. Catholic Charities challenged this denial as a violation of the First Amendment's Religion Clauses.

Opinion of the Court

Justice Sotomayor, writing for a unanimous Court, reversed the Wisconsin decision. The Court held that Wisconsin's interpretation of its law imposed an impermissible denominational preference by differentiating religious organizations based on theological lines—specifically, by making the exemption contingent on proselytization or exclusive service to fellow Catholics.

Such distinctions "touch inherently religious choices," not neutral criteria with incidental religious impact, and therefore trigger strict scrutiny. Wisconsin failed to justify its approach:

• Its claimed interest in universal unemployment coverage wasn't advanced by theological distinctions. Catholic Charities already operates its own comparable benefit system, and Wisconsin exempts other religious entities providing identical services simply because they directly employ clergy.

• Wisconsin's argument about avoiding government entanglement with religion also failed. The exemption covers all employees of qualified organizations—many who don't teach or practice doctrine—while excluding identical charities under the same church umbrella unless they proselytize or limit service.

The Court reversed the Wisconsin Supreme Court's judgment and remanded the case.

Separate Opinions

Justice Thomas concurred but on broader church-autonomy grounds. He argued the Wisconsin Supreme Court also violated the First Amendment by treating Catholic Charities and its canonically integrated entities as separate, secular corporations rather than as an ecclesiastical arm of the Diocese.

Justice Jackson concurred in the judgment but emphasized statutory interpretation. She noted that the parallel federal exemption was designed to distinguish church-affiliated institutions by the nature of their functions (like training ministers or houses of study), not by the motivations driving them.

When Religious Tax Exemptions Cross Constitutional Lines

This case centers on when religious organizations qualify for tax exemptions and how governments can make those determinations without violating the Constitution. The federal unemployment law, which Wisconsin's statute mirrors, requires most charities to participate in state unemployment systems but exempts church-controlled entities "operated primarily for religious purposes."

The legislative history shows that "religious purposes" was meant to cover institutions performing ministerial or doctrinal functions (like seminaries or religious colleges), not merely organizations inspired by religious faith (like church-affiliated orphanages or day-care centers).

This distinction reflects broader First Amendment principles: laws that differentiate based on theological grounds—like proselytization, sacramental practice, or doctrinal content—trigger stricter constitutional scrutiny than laws applying religiously neutral criteria. When eligibility for a benefit turns on expressly religious activities, "The First Amendment mandates government neutrality between religions," subjecting such schemes to strict scrutiny. Wisconsin's approach, as interpreted by its Supreme Court, failed to maintain this neutrality and couldn't survive the demanding test the Constitution requires.