Catholic Charities Bureau, Inc., based in Superior, convinced the U.S. Supreme Court in December to review the Wisconsin Supreme Court’s denial of an unemployment tax exemption that it claims unconstitutionally infringes on its First Amendment rights.

Wisconsin is among 47 states whose statutory language is identical or similar to the Federal Unemployment Tax Act (FUTA), Catholic Charities explained in seeking U.S. Supreme Court review.

Catholic Charities wants to participate in the Catholic Church’s unemployment insurance program, which it claims provides the same services as the Wisconsin unemployment program but at a lower cost.

The religious purposes exemption to Wisconsin’s unemployment tax in Wis. Stat. section 108.02(15)(h)2. covers those “[i]n the employ of an organization operated primarily for religious purposes and operated, supervised, controlled or principally supported by a church or convention or association of churches[.]”

Whether the Wisconsin Supreme Court’s exemption denial violated the Establishment Clause, the Free Exercise Clause, and the church autonomy principle of the First Amendment are questions the U.S. Supreme Court may explore.

An Appeal with a Long History

Catholic Charities is the Diocese of Superior’s means of outreach, under leadership of the bishop, to serve people in need in accordance with Roman Catholic principles of social justice that it traces to Jesus Christ.

Catholic Charities has contributed to state unemployment tax since 1972, when it reported to the state that its operations were charitable, educational, and rehabilitative – but not religious.

But in 2015, one of Catholic Charities’ sub-entities, Challenge Center, Inc., succeeded in receiving the tax exemption.

The next year, Catholic Charities and four other sub-entities sought the exemption. The separate corporations provide services in a non-denominational, secular manner with funding from Wisconsin agencies and government contracts.

Catholic Charities explained that its faith required it to employ and to provide services to people of all faiths, without seeking to convert them, taking its orders from the Pope.

The Department of Workforce Development (DWD) denied the exemption request only for an administrative law judge (ALJ) to reverse DWD. The Wisconsin Labor and Industry Review Commission (LIRC) reversed the ALJ.

After losing in administrative hearings, Catholic Charities and the sub-entities sought judicial review. Douglas County Circuit Court granted the exemption, but the court of appeals and the supreme court (2024 WI 13) both affirmed LIRC’s decision.

The Majority’s Objective Test

The key phrase allowing the exemption required the supreme court to determine whether Catholic Charities and the sub-entities were “operated primarily for religious purposes.”

Justice Ann Walsh Bradley, writing for the 4-3 majority, said the court had to consider the purpose of the sub-entities themselves, not the church’s purpose.

The two sides disagreed about how to determine religious purposes. Catholic Charities argued that motivations alone counted. The LIRC, whose decision is on appeal, concluded that the analysis focused on activities.

The majority, citing dictionary definitions in statutory analysis that the dissent disputed, concluded under the statute “that both activities and motivations must be considered.”

The means to interpret Catholic Charities’ activities used by the majority focused on “mission” as definable by “objective criteria.”

In United States v. Dykema, 666 F.2d 1096 (7^th Cir., 1981), a case involving a pastor’s tax liability, such “typical activities” included worship services, preaching, “evangelical outreach to the unchurched,” pastoral counseling, and religious education.

The majority failed to find such activities in Catholic Charities and its sub-entities, which the majority concluded “are primarily charitable and secular.”

The legislative history of the federal unemployment law counseled that conclusion, the majority highlighted.

First Amendment Dispute

Although the analysis discussed religious activities, the majority didn’t find a First Amendment problem with its decision.

The majority said it was treating all religious organizations equally, without considering “religious dogma,” in a neutral, minimal manner, consistent with Dykema and other cases.

Catholic Charities argued that the LIRC decision penalized it for operating through corporations separate from the church – an interference with church autonomy.

The majority said its interpretation of the state unemployment statute “neither regulates internal church governance nor mandates any activity.”

Catholic Charities claimed that such analysis abandons “neutrality among religions and violates the Free Exercise Clause in two ways.” These violations penalized Catholic Charities for how it lives its beliefs and for the church’s use of separate corporate entities.

The majority saw nothing in the unemployment tax that burdens religious beliefs or “prevents [Catholic Charities] from fulfilling any religious function or engaging in any religious activities.”

The dissent, authored by Justice Rebecca Grassl Bradley and joined by Chief Justice Annette Kingsland Ziegler, disagreed with the majority’s statutory interpretation and concluded the majority’s decision violated the First Amendment.

Justice Brian Hagedorn “would not reach the constitutional questions” but joined the dissent for its statutory analysis.

The majority’s definition of religious activities as principally educational and proselytization, the dissent wrote, denies exemptions for faith-based activities that secular organizations may provide. Lesser-known faiths would suffer the most.

“Unfinished Business”

Catholic Charities asked the U.S. Supreme Court to resolve “unfinished business” that the court failed to address in a pair of First Amendment cases 40 years ago.

A split of authority continues to grow because of that unfinished business, Catholic Charities tallied, about whether “sincere beliefs” alone sufficed or if activities, as the Wisconsin Supreme Court held, were a part of applying the exemption’s language with federal origins in FUTA.

The Wisconsin Supreme Court decision, Catholic Charities argued, infringes upon First Amendment rights.

The decision violates the Free Exercise clause, Catholic Charities said, because it “penalizes Catholic Charities for its Catholic beliefs regarding how it must engage in its ministry,” which it provides regardless of the recipient’s religious beliefs.

As Catholic Charities analogized in criticizing the Wisconsin decision, “it doesn’t matter if Catholic Charities gives a cup of water in Jesus’ name, because non-religious charities offer cups of water too.”

The decision, Catholic Charities said, “also violates the bedrock principle of neutrality among religions by discriminating against groups with more complex polities.”

“Wisconsin penalizes the Catholic Church for organizing itself as a group of separate corporate bodies in accordance with Catholic teaching on subsidiarity” that results, according to Catholic Charities, in discrimination.

The Catechism of the Catholic Church describes “subsidiarity” as higher-level organizations supporting and coordinating with independent lower-level organizations.

Because the analysis used by the Wisconsin Supreme Court led to “an intrusive inquiry into the internal affairs of religious organizations,” Catholic Charities argued, the government entangled itself with religion in violation of the Establishment Clause.

Finally, the Wisconsin analysis “interferes with matters of church government and organization,” according to Catholic Charities, because it penalized Catholic Charities’ organization “as separately incorporated bodies in accordance with the Catholic principle of subsidiarity.”

In seeking to defeat review, LIRC and DWD saw no split of authority among decisions interpreting state unemployment tax laws. The decision remained safely grounded in objective, neutral principles under U.S. Supreme Court precedent.

The agencies reinforced that no evidence showed the unemployment tax burdened Catholic Charities’ religious beliefs or prohibited religious activities.

In its reply brief, Catholic Charities explained those divided cases interpret nearly identical state unemployment statutes required by federal law.

In addition, Catholic Charities’ burden grows from a denial of the benefit of tax exemption, which would allow the organization to operate more cost-effectively – freeing more money to serve those in need.

The U.S. Supreme Court has not yet scheduled briefing or oral arguments.