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Breaking: Supreme Court Strikes Down Wisconsin Religious Tax Rule in Unanimous Decision

Posted on June 5, 2025 by ReligiousLiberty.TV

Ruling rebukes state for requiring faith-based charities to proselytize or limit services to co-religionists in order to qualify for unemployment tax exemption


In a unanimous decision issued June 5, 2025, the U.S. Supreme Court ruled that Wisconsin violated the First Amendment by denying Catholic Charities Bureau, Inc. and several of its subentities a religious exemption from the state’s unemployment insurance tax program because they did not proselytize or limit their services to fellow Catholics.

The case, Catholic Charities Bureau, Inc. v. Wisconsin Labor and Industry Review Commission, challenged Wisconsin Statute §108.02(15)(h)(2), which exempts nonprofits “operated primarily for religious purposes” and “controlled by a church” from contributing to the state’s unemployment fund. The Wisconsin Supreme Court had denied the exemption, reasoning that Catholic Charities’ services—such as support for individuals with disabilities—were not “inherently religious” and were offered without religious instruction or restrictions on recipients’ faith.

The U.S. Supreme Court reversed that ruling. Justice Sonia Sotomayor, writing for the Court, held that Wisconsin’s interpretation violated the First Amendment by conditioning religious exemptions on theological criteria that differentiate between denominations. “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,” Sotomayor wrote.

The decision emphasized that Catholic Charities’ inclusive approach and rejection of proselytism were themselves rooted in Catholic doctrine. Catholic teaching prohibits using charitable works as a means of religious coercion. As such, the Court concluded, Wisconsin’s exemption criteria disfavor religions with such doctrines and thus fail the constitutional requirement of neutrality among faiths.

The state had argued that strict scrutiny should apply only when a law is facially discriminatory or enacted with invidious intent. Citing Gillette v. United States, Wisconsin claimed that courts should ask whether a law reflects a design to favor one religion. The Court rejected this view, distinguishing Gillette on the grounds that the statute at issue there did not impose doctrinal requirements for eligibility, unlike Wisconsin’s.

The Court also found the exemption could not survive strict scrutiny. Catholic Charities operated its own unemployment program with benefits largely equivalent to the state system. Moreover, Wisconsin’s exemption was both underinclusive—excluding charities controlled by churches that served the broader public—and overinclusive—automatically exempting churches and ministers without examining their employment structure. The Court determined that such a scheme was not narrowly tailored to any compelling state interest.

Concurring Opinions

Justice Clarence Thomas wrote a separate concurrence emphasizing the constitutional autonomy of religious organizations. He argued that Wisconsin erred not only in applying theological criteria but also in treating Catholic Charities and its subentities as legally distinct from the Diocese of Superior simply because they were separately incorporated. According to Thomas, such treatment violated longstanding First Amendment protections of church governance. He wrote, “In my view, the Wisconsin Supreme Court’s first holding was also wrong,” referring to its decision to analyze the subentities’ purposes independently from the Diocese.

Thomas grounded his reasoning in church autonomy doctrine and early American legal traditions that recognized the internal governance structures of religious entities as beyond the reach of civil authority. “[T]he corporation is made for the church, not the church for the corporation,” he concluded, cautioning against state interference that “undermines the First Amendment rights of religious institutions.”

Justice Ketanji Brown Jackson also filed a concurrence, focusing on the limited scope of the Court’s decision. She stressed that the ruling addressed only the denominational neutrality claim under the Establishment Clause and did not reach other constitutional arguments such as excessive entanglement or free exercise claims. Her opinion clarified that courts must still scrutinize exemption regimes closely to ensure they do not favor religious over secular entities or permit unbounded exemptions.

With all justices in agreement on the unconstitutionality of Wisconsin’s application of the statute, the Court remanded the case for further proceedings. The state may now be forced to revise its approach to unemployment tax exemptions for religious organizations or face additional legal challenges.

Further action from Wisconsin’s Department of Workforce Development or legislative amendments to §108.02(15)(h)(2) could follow. A formal exemption for Catholic Charities Bureau and its subentities is expected to be resolved on remand unless the state seeks to defend the law under a revised rationale.


Plain-Language Legal Analysis: What This Supreme Court Decision Means

The Supreme Court’s decision in Catholic Charities Bureau, Inc. v. Wisconsin Labor and Industry Review Commission says that states can’t play favorites between religious groups when deciding who qualifies for certain legal exemptions—like not having to pay into the unemployment system. Here’s what that means in everyday terms:

What was the issue?

Catholic Charities, a nonprofit organization tied to the Catholic Church in Wisconsin, asked to be exempt from paying unemployment taxes. The law says such exemptions are available to religious nonprofits—but only if they’re “operated primarily for religious purposes.” Wisconsin said Catholic Charities didn’t qualify because it didn’t try to convert people or limit its help to Catholics.

What did the Court decide?

The Supreme Court said that wasn’t okay. It ruled that Catholic Charities was religious—even though it served everyone and didn’t preach while doing so—because helping people is part of the Catholic Church’s religious mission. The Court said it’s unconstitutional for a state to say, “You’re not religious enough because you don’t proselytize.”

In other words, the government can’t judge religion by whether it looks a certain way. Just because some faiths evangelize and others don’t doesn’t mean the law can favor one over the other.

Why is that important?

It reinforces that government must stay neutral between different religious beliefs. Whether a group spreads its faith or quietly lives it out through service, both are religious in the eyes of the Constitution.

What happens next?

The case now goes back to Wisconsin courts, where Catholic Charities is likely to get the tax exemption. Other states with similar laws may now need to adjust their rules to avoid the same constitutional problem.

This decision protects religious organizations from being penalized just because their beliefs lead them to serve broadly rather than narrowly.


How to Use These Newsletters:

These newsletters are designed to provide timely, accurate summaries of important legal decisions and developments. They aim to offer clear background and context that can help you quickly understand how courts are handling certain legal questions. However, they do not constitute legal advice and should not be relied upon as authoritative sources in legal pleadings, filings, or decisions. Their purpose is to help you think through issues, not to serve as a basis for legal strategy or citation.

A good practice is to archive the newsletters in a dedicated email folder, organized by topic or jurisdiction. When a similar issue arises in your work, you can return to past newsletters for quick reference. They can serve as reminders of how certain arguments were framed, what doctrines were applied, or which procedural mechanisms were at play. This can save you time and help guide early-stage research or internal discussion.

These summaries may also be helpful for briefing colleagues or clients on legal trends without requiring them to read full-length court opinions. They distill key facts, procedural history, and holdings in a standardized format. That said, while they aim for precision, some inaccuracies may occasionally occur. Always consult the underlying court documents or legal statutes for the final word.

Ultimately, the newsletters are tools for awareness and orientation. They can point you to ideas, frameworks, or cases you might want to explore further, but they should never replace a thorough review of primary sources or legal consultation. Think of them as a curated overview—useful for context, but not binding or definitive.

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