SCOTUS Weighs If States May Tax Catholic Charities, Religiously Affiliated Groups

On Monday, the U.S. Supreme Court will take up a case that critics argue could affect unemployment benefits for over a million workers nationwide. At the heart of the case is whether states can require religiously affiliated groups—such as Catholic Charities—to pay unemployment insurance taxes.

The Catholic Charities Bureau and four related nonprofits claim Wisconsin violated their First Amendment rights by denying them an exemption. It’s the first religion-centered case the Court’s conservative 6-3 majority has agreed to hear in nearly two years.

In recent rulings, the Court’s conservative justices have narrowed the separation between church and state, arguing that certain policies meant to uphold the Establishment Clause have instead unfairly targeted religious groups.

Those rulings include decisions that expanded access to public funding for religious schools, permitted a Christian group to fly a flag at Boston City Hall, and allowed a public school football coach to pray at midfield.

A broad coalition of religious organizations has urged the Court to rule in favor of Catholic Charities.

A decision, expected by the end of June, could have wide-reaching consequences—potentially affecting religiously affiliated hospitals and other service organizations. Legal experts also warn it could make it harder for governments to verify whether an organization’s religious claims are legitimate or simply a way to avoid taxes.

“Taking religious organizations at their word on the religiousness of their activities makes it hard for the government to challenge if those activities are actually religious,” explained Luís Calderón Gómez, a tax law professor at Yeshiva University’s Benjamin N. Cardozo School of Law.

“You open the doors for abuse when you just look at whether there’s a sincerely held belief rather than looking at the activity,” he added.

Currently, churches are generally exempt from paying unemployment taxes. The justices will now consider whether groups like Catholic Charities, which are part of the Catholic Church but do not engage in overt religious teaching or evangelism, qualify for that same exemption.

Catholic Charities Bureau, which operates as the “social ministry arm of the Diocese of Superior” in Wisconsin, provides a variety of services including care for the elderly, disabled, and low-income families.

“Wisconsin has denied Catholic Charities a religious exemption that the state freely extends to other religious organizations based on the absurd view that Catholic Charities’ aid to the needy isn’t religious at all,” attorneys for the group argued in their brief to the Court.

The group is represented by the Becket Fund for Religious Liberty, which stated that unemployment insurance for the group’s employees would be managed by a church-affiliated entity—not the state.

Critics, however, caution that workers at similar nonprofits across the country may not be as protected.

While 47 states and the federal government do exempt religious organizations from paying unemployment taxes, Wisconsin’s case could influence how those exemptions are interpreted moving forward.

The Freedom from Religion Foundation, siding with the state, highlighted that six Catholic-affiliated health systems with ties to billions in assets collectively employ about 787,000 workers. The Service Employees International Union also noted that more than a million workers are employed by religiously affiliated employers.

Wisconsin, for its part, told the Court that Catholic Charities has participated in the state’s unemployment program since 1971 without any issues.

“If the First Amendment did not allow religious accommodations to be tailored to particular religious groups on a nondenominational basis, legislatures (and courts) would have to choose between exempting all religious groups or none at all,” the state’s legal team told the justices.

Given the Court’s recent trend of ruling in favor of religious groups, many observers believe Catholic Charities has a strong chance of prevailing.