MADISON, Wis. (CN ) — The Wisconsin Supreme Court decided on Thursday that a group of nonprofit organizations affiliated with a Catholic diocese are not exempt from paying the state unemployment insurance tax.
In a 4-3 decision split along ideological lines, the court’s liberal majority found that Catholic Charities Bureau and its subentities cannot avoid paying the tax because they are not “operated primarily for religious purposes,” a phrase in state law that the case’s controversy revolves around.
The bureau and the subentities — Barron County Developmental Services Inc., Diversified Services Inc., Black River Industries Inc. and Headwaters Inc., specifically — unsuccessfully argued such a finding violates religious protections in the First Amendment and the Wisconsin Constitution.
Writing for the majority, Justice Ann Walsh Bradley said “both the motivations and activities” of an organization must be examined to determine if they are exempt from the unemployment tax. She said analyzing the bureau and its subsidiaries in this way reveals they are not operated primarily for religious purposes, even if they are supervised and controlled by a Roman Catholic diocese.
In an emailed statement, Eric Rassbach, the senior counsel and vice president of the Washington-based Becket Fund for Religious Liberty who represented the bureau, said “the Wisconsin Supreme Court got this case dead wrong.”
“[The bureau] is religious, whether Wisconsin recognizes that fact or not. We plan to appeal this decision to the United States Supreme Court to protect [the bureau's] good deeds," Rassbach said.
In 2015, a Douglas County Circuit Court judge found that one of the entities under the bureau’s umbrella was tax exempt. This prompted the bureau and the four other subentities to petition for the same legal treatment. An administrative law judge ultimately reversed the state Department of Workforce Development’s decision against them.
After the Wisconsin Labor and Industry Review Commission reversed the administrative law judge upon the department’s appeal, a state court reversed the commission. Yet more appeals led to a reversal from the Wisconsin Court of Appeals, and, in the end, to the state Supreme Court, which heard arguments on the matter in September.
Walsh Bradley said a distinction must be drawn between a church’s purpose and an affiliated nonprofit’s purpose to determine tax-exempt status, otherwise any organization operated and controlled by a church would automatically enjoy that status even if they are not operated primarily for religious purposes, which cannot be allowed by state law.
“Although the motivations of an organization certainly figure into the analysis, allowing self-definition to drive the exemption would open the exemption to a broad spectrum of organizations based entirely on a single assertion of religious motivation,” Walsh Bradley said.
“[The bureau’s] and the subentities’ activities are primarily charitable and secular,” the justice said, adding that the services they provide can be motivated by either religious or secular concerns, “and the services provided would not differ in any sense.”
At the top of the bureau’s organizational chart is the bishop of the Diocese of Superior — currently Bishop James Powers — in Superior, Wisconsin, where the bureau is also based. The prelate exercises control over the subsidiaries and the bureau itself, whose stated mission since 1917 has been “providing services to the poor and disadvantaged” and being “an effective sign of the charity of Christ,” according to the majority.
The four subentities mostly provide job training, work placement and other opportunities for people with disabilities. A spokesperson for Diversified Services previously told Courthouse News that disabled workers are paid on a per-piece basis that can translate to wages between 33 cents an hour and a little above Wisconsin’s minimum wage of $7.25 an hour.
As for the bureau’s arguments that the majority’s statutory interpretation violates the First Amendment’s establishment and free exercise clauses, Walsh Bradley was unconvinced that the interpretation caused excessive state entanglement with religion, violated the constitutional church autonomy principle, or discriminated against religious entities with complex organizations.
This contrasted starkly with conservative Justice Rebecca Grassl Bradley, whose 73-page dissenting opinion charged the majority with unconstitutional judicial activism that “mangles” the statute.
Grassl Bradley accused the majority of “impermissibly entangling the government in church doctrine” and using their preferred reading of the law to give preference to Protestant denominations that combine charity and proselytizing, as opposed to denominations like Catholicism and Judaism which forbid such combining.
Forwarding an analysis that requires courts to “determine what religious practices are sufficiently religious” also judges matters of faith in a way that discriminates against groups like Sikhs, Hindus and Hare Krishnas, said Grassl Bradley.
“The majority’s decision constitutes a profound overreach of the judicial power” that supersedes the power of the Legislature and unconstitutionally wades into matters of theology, Grassl Bradley concluded.
Chief Justice Annette Ziegler joined Grassl Bradley’s dissent. Justice Brian Hagedorn wrote a brief, separate dissent saying he agreed with the statutory construction of Grassl Bradley’s “thoughtful dissent” but would not reach the constitutional questions and does not cosign every point of her analysis.
Walsh Bradley was joined in the majority by justices Rebecca Dallet, Jill Karofsky and Janet Protasiewicz.
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