High Court’s Catholic Charities Case to Go Beyond Unemployment

The US Supreme Court ruling that Wisconsin’s preference for religious groups that only serve followers of their own faith is unconstitutional has opened new pathways for state tax and other exemptions.

The unanimous decision reversed the Wisconsin Supreme Court’s holding that Catholic Charities Bureau Inc. was rightfully denied an exemption from unemployment taxes because it provides services indistinguishable from those offered by secular organizations.

Attorneys and scholars say the June 5 ruling has the potential for widespread repercussions as religious organizations leverage a newfound ability to escape state mandates and restrictions in a variety of areas.

“The decision is really an inroad to expanding tax exemptions for religious organizations that may prompt more groups” to seek similar breaks, said Daniel S. Welytok, shareholder and chair of the tax section at von Briesen & Roper s.c.

“Then that would certainly affect the state and federal revenue bases that are derived from the taxation of employment-related activities, and it could bleed over into other areas,” he said.

Those areas include requirements for providing retirement benefits and bans on certain types of employment discrimination, Welytok said.

With the Supreme Court’s expansive definition, a company can simply claim to have a religious motive and claim an exemption from labor and employment laws, he said.

More Tax Breaks

The Catholic Charities case reminds the courts to simply apply the plain language of tax statutes instead of interpreting laws that aren’t ambiguous, said Lynn Gandhi, a partner at Foley & Lardner LLP.

Revenue agencies and some courts have a tendency to interpret an exemption statute against the taxpayer and in favor of the government even where the legislature has clearly granted the tax break, she said.

That issue is common in sales and use tax cases, so the ruling could be cited in those cases going forward, Gandhi said.

“You have a business saying, ‘Hey, we think this exemption applies.’ And you now have either the agency or a court giving its twist on the interpretation of the exemption,” Gandhi said. “It shouldn’t be needed.”

C. Eric Fader, special counsel focusing on tax at Duane Morris LLP, agreed that the Supreme Court’s decision may make it more difficult for states to “peel back the onion” to scrutinize whether applicants for exemptions actually qualify.

“The fact that the taxpayer simply has a religious motivation will go a long way in having its exemption stand,” he said.

That heightened ability to claim tax exemptions will translate to more limited revenue for state governments, said Fader.

The ruling also could potentially affect federal revenue, as there’s a parallel unemployment tax law in the US code, he said.

Further Refining

In his concurrence, Justice Clarence Thomas pushed for broader church autonomy, criticizing the Wisconsin Supreme Court for recognizing CCB as a separate entity from its controller, the Catholic Church, instead of deferring to how the organization defined its own structure.

“I obviously expect more litigation by religious groups and the concurrence written by Thomas, at least, shows me that there’s some appetite for substantially broadening some of the rights that they have,” said Cardozo Law Professor Luís Carlos Calderón Gómez. “What shape that exactly takes, I’m not completely sure.”

Justice Sonia Sotomayor, who authored the majority opinion, noted that more than 40 states have exemptions like Wisconsin’s.

“The primary implication is whether or not tax exemptions in other areas can be expanded based on some analogy to the ruling here with respect to unemployment compensation,” Welytok said.

While exempt churches are presumed to still cover unemployment benefits to their employees, their plans can vary widely from what the government provides through the tax system, he said.

And if a church went bankrupt or “has a liability that eclipses its unemployment obligations,” it’s not required to deliver those benefits under state law.

“So the safety net, if you will, of a government protection is no longer there,” Welytok said.

The case is Cath. Charities Bureau, Inc. v. Wisc. Labor & Indus. Rev. Comm’n, U.S., No. 24-154, 6/5/25.