U.S. Supreme Court Rules Wisconsin’s Denial of Religious Tax Exemption Unconstitutional

June 5, 2025

Overview

The U.S. Supreme Court unanimously ruled that Wisconsin’s denial of a religious exemption from unemployment compensation taxes to Catholic Charities Bureau, Inc. violates the First Amendment. The decision, issued on June 5, 2025, overturned a Wisconsin Supreme Court ruling that deemed the organization’s activities “primarily charitable and secular” rather than religious. The case centered on whether Wisconsin’s criteria for granting tax exemptions to religious organizations discriminated based on theological practices, raising broader questions about religious freedom and government neutrality. This ruling reflects ongoing debates about balancing religious rights with state regulatory interests, particularly in the context of unemployment insurance programs that fund benefits for jobless workers.

Facts

Wisconsin law exempts nonprofit organizations “operated primarily for religious purposes” and controlled by a church from paying unemployment compensation taxes (Wis. Stat. §108.02(15)(h)(2)).
Catholic Charities Bureau, Inc., and four subsidiaries, operating under the Roman Catholic Diocese of Superior, sought this exemption in 2016.
The Wisconsin Supreme Court in 2024 denied the exemption, stating the organizations’ activities, such as providing services to people with disabilities, were not “primarily religious” because they did not proselytize or limit services to Catholics.
The U.S. Supreme Court, in a 9-0 decision on June 5, 2025, ruled that Wisconsin’s application of the law violated the First Amendment’s guarantee of free exercise of religion and neutrality between religions.
The Court found that Wisconsin’s criteria imposed a “denominational preference” by favoring religious groups that proselytize or serve only co-religionists.
Catholic Charities operates its own unemployment compensation system, offering benefits comparable to Wisconsin’s state system.
The ruling reversed the Wisconsin Supreme Court’s decision and remanded the case for further proceedings (605 U.S. ____ (2025)).

Perspectives

Catholic Charities Bureau, Inc.: The organization argued that its charitable work, rooted in Catholic teachings, constitutes religious activity. It contended that Wisconsin’s denial of the exemption discriminated against its theological practices, which emphasize serving all people regardless of faith, and violated its First Amendment rights.
Wisconsin Labor and Industry Review Commission: The state maintained that the exemption applies only to organizations with “distinctively religious” activities, such as worship or proselytization. It argued that Catholic Charities’ services, being secular in nature, did not qualify, and that granting the exemption could strain the state’s unemployment insurance fund.
Freedom From Religion Foundation: This advocacy group criticized the Supreme Court’s ruling, asserting that it expands religious exemptions excessively. It argued that allowing secular services to qualify for exemptions risks undermining state-church separation and could lead to widespread tax exemptions for religiously affiliated organizations.
Becket Fund for Religious Liberty: Celebrated the ruling as a victory for religious freedom. It argued that Wisconsin’s criteria unfairly penalized religious organizations for serving diverse communities, asserting that charitable work is inherently religious when motivated by faith.
Wisconsin Employment Lawyers Association: This group expressed concern that the ruling could jeopardize workers’ access to unemployment benefits. It argued that expanding exemptions might allow employers to bypass state systems by claiming religious affiliations, potentially leaving employees unprotected.

Considerations

The ruling strengthens protections for religious organizations, affirming that states cannot differentiate between religions based on theological practices.
Expanded religious exemptions may reduce state unemployment insurance funds, potentially impacting benefits for workers in Wisconsin and 46 other states with similar laws.
The decision could set a precedent for religiously affiliated organizations, such as hospitals, to seek exemptions from various regulations, affecting millions of employees.
Short-term, Catholic Charities’ employees may transition to the organization’s private unemployment system, which may offer less procedural oversight than state systems.
Long-term, the ruling may prompt states to revise exemption criteria to avoid First Amendment violations, potentially leading to uniform federal guidelines.
Increased litigation over religious exemptions is likely, as organizations test the boundaries of “religious purpose” in secular activities.
The decision reflects a broader trend of the Supreme Court prioritizing religious freedom in recent rulings, potentially reshaping church-state relations.