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Catholic charities fight for tax exemption at top Wisconsin court

The Catholic organization doesn't want to pay the Wisconsin unemployment insurance tax, which is usually mandatory for private employers.

(CN) — A Catholic nonprofit umbrella organization and its subordinate businesses went before the Wisconsin Supreme Court on Monday, arguing the groups ought to be exempt from paying the state's unemployment insurance tax.

The tax is typically mandatory for private employers in Wisconsin. But the nonprofits organized under the Catholic Charities Bureau, itself a part of the Catholic Diocese of Superior, argue state law makes an exception for organizations "operated primarily for religious purposes."

This phrase is at the heart of the dispute between the bureau and Wisconsin's Labor and Industry Review Commission, which wants the nonprofits to pay into the tax system. The bureau argued it is exempt from the tax, since it operates under a religious "motive or reason," while the state claims that exemption questions are dependent more narrowly on an organization's religious "activities."

The four Wisconsin nonprofits party to the suit who operate under the Catholic Charities Bureau — Barron County Developmental Services Inc., Diversified Services Inc., Black River Industrie, Inc. and Headwaters Inc. — all provide vocational training for people with developmental disabilities, and also employ disabled individuals to perform work for typically sub-minimum wage compensation.

According to a spokesperson for Diversified Services, which provides product assembly services to businesses using disabled workers' labor, said disabled workers are paid on a per-piece basis that translates to 33 cents per hour on the low end of the pay scale, to $7.31 per hour at the high end. Wisconsin minimum wage for non-tipped adults currently stands at $7.25 per hour.

The nonprofits claim they offer these services motivated by the Catholic tenet of charity, which their attorney Eric Rassbach, who also serves as the vice president and senior counsel for the Becket Fund for Religious Liberty, argued was sufficient to warrant religious tax exemption.

"Like a car that's operated by a driver and for the driver's purposes, CCB is operated by the Diocese [of Superior] and for the purpose of carrying out the Diocese's religious mission," Rassbach said.

But the state's Labor & Industry Review Commission, represented by attorney Jeffrey Shampo, argued there was nothing the nonprofits did that was specifically religious; that is, nothing that distinguished them from secular, tax-paying counterparts other than a non-falsifiable profession of faith.

"While I agree that the church probably set up these corporations as part of its overlying beliefs, that isn't what you look at to determine purpose," said Shampo. For instance, while a priest seminary would meet the criteria for exemption, an orphanage or nursing home would not.

The legal road to Monday's hearing was circuitous: In 2015, a Wisconsin state judge ruled that one of the bureau's sub-entities was religiously exempt from the unemployment insurance tax, prompting the bureau and the four party nonprofits to seek a similar determination from Wisconsin's Department of Workforce Development. The department decided against the nonprofits, only for a state administrative law judge to reverse its decision. Then, the department appealed to the state's Labor and Industry Review Commission, which reversed in its favor — only for the bureau to appeal to a state court which affirmed it was tax exempt.

The Department of Workforce Development and Labor and Industry Review Commission took the case higher, to the state Court of Appeals, which reversed the lower court's ruling and affirmed that the bureau and its nonprofits weren't tax exempt. Monday's hearing was a review of that decision.

The high court's own perception of the debate was divided along ideological lines.

Conservative Justice Rebecca Bradley, who attended a Catholic high school, the Catholic Marquette University and also once served on the Board of Governors for the Catholic St. Thomas More Lawyers Society, was the bureau's most fervent supporter on the bench. She asserted to Shampo that the Bureau and its nonprofits' services fulfilled a vital charge of Catholic doctrine, which could not be disentangled from sincere Catholic belief and "religious purpose."

"In the eyes of the Catholic Church as well documented in the tenets of the Catholic faith, they are [practicing their religion]," Bradley said after Shampo admitted the state's case may be weaker if the nonprofits' activities included some form of overt religious practice.

"That's exactly what they are doing," the judge said. "It is a religious activity with a religious motivation."

By contrast, the more liberal Justice Rebecca Frank Dallet, who is Jewish, appeared highly skeptical of Rassbach's arguments.

Citing an amicus brief from the Freedom From Religion Foundation, an advocacy group which champions the separation of church and state, Dallet noted many of the state's hospitals and colleges could claim similar tax exemption if the court ruled on the side of the bureau.

"I hear you saying that you identify a religious purpose. The purpose for hospitals would be caring for the sick, which is a Catholic mission," Dallet reasoned. "It's the Catholic church that started those hospitals way back when, so I don't know how that wouldn't follow from your argument."

But Rassbach denied any attempt to expand unemployment tax exemption to religious hospitals or colleges, saying their potential exempt status faced other legal hurdles not at stake in this case.

"The brief that you are mentioning, it talks about... [siding with the CCB] will unleash this parade of horribles. I don't think that they can say that, because I don't think that they can say that those entities would necessarily qualify under [state law]."

Rassbach doubled down on his arguments toward the end of the hearing, which ended without a ruling, claiming the high court deciding against the bureau would open a "Pandora's Box" of constitutional questions for Wisconsin courts.

"They would take us down a path of looking at whether activities, across the board, are inherently secular," Rassbach said.

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Categories / Appeals, Civil Rights, Employment, Religion

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