State Attorney General Challenging Ruling Regarding Religious Tax Exemptions

Tuesday, November 4th, 2025 -- 9:01 AM

(Anya Van Wagtendonk, Wisconsin Public Radio) Months after a unanimous U.S. Supreme Court ruling found that a Wisconsin-based religious charity should be exempt from certain taxes, Wisconsin Attorney General Josh Kaul is challenging religious tax exemptions entirely.

According to Anya Van Wagtendonk with the Wisconsin Public Radio, Kaul’s action comes after the nation’s highest court ruled in favor of the Catholic Charities Bureau in Superior, striking down a decision by the Wisconsin Supreme Court from last year. The Wisconsin ruling would have subjected the charitable arm to the same unemployment taxes levied on other types of nonprofits.

At the heart of that dispute was a question of whether the faith-based social services organization was primarily a charitable group, subject to the same rules as nonreligious charities, or primarily a religious group, which would exempt them from some tax obligations, in the same way as houses of worship.

In a 9-0 decision, the U.S. Supreme Court ruled that the state had violated the First Amendment’s guarantee of religious freedom by requiring the Catholic Charities Bureau to pay unemployment tax while exempting other faith groups.

Justice Sonia Sotomayor wrote that the First Amendment requires the government to be neutral between religions. “There may be hard calls to make in policing that rule, but this is not one,” Sotomayor wrote.

The ruling sent the case back to the Wisconsin Supreme Court, where in an Oct. 20 remedial brief, Kaul argued that the U.S. Supreme Court did not offer a fix for that violation.

“Discrimination is cured by restoring equal treatment, which can be accomplished here in one of two ways: either by expanding the statutory exemption to groups like Catholic Charities or else by eliminating it altogether,” reads the brief.

Kaul and two assistant attorneys general argue that removing the exemption from paying unemployment taxes for all affected religious groups, rather than expanding the exemption for other similar religious social service organizations, is the preferred remedy.

“By striking the exemption, this Court can avoid collateral damage to Wisconsin workers while still curing the discrimination the U.S. Supreme Court identified,” Kaul wrote.

The Becket Fund for Religious Liberty, whose attorneys argued on behalf of the Catholic Charities, has filed a supplemental brief in the case, arguing that Kaul’s argument amounts to a bait-and-switch that entangles church and state, and would target religious groups.

“Having violated the Constitution, Wisconsin cannot now act as if its new proposal has nothing to do with that history or that it has not targeted Catholic Charities for exclusion from the very beginning,” wrote attorneys for the group.

The Kaul brief essentially asks the Wisconsin Supreme Court to “level up or level down” its application of religious exemptions, according to Christopher Lund, a professor of law at Wayne State University Law School and foremost expert on religious law issues who filed a brief in the U.S. Supreme Court case.

“You could extend the (unemployment tax) exemption to Catholic Charities and other organizations like them, or you could cut back on the exemption and say that no religious groups get the exemption,” he said. “Either way, you sort of solve the equality problem.”

The U.S. Supreme Court has extended religious exemptions outward, or “leveled up,” in previous cases, but it has also done away with exemptions, or “leveled down.”

So, while court precedent offers both sides of this issue something to argue about, Lund said, both Kaul and the Becket Fund point to the state Legislature.

Kaul argues that eliminating the exemption is the better course of action because the state Legislature has “express desire for broad unemployment insurance coverage.”

As an increasing number of nonprofits have been subjected to paying into the unemployment system, Kaul argues, so too should religiously motivated nonprofits. The reverse, he argues, could lead to exempting large religious health care systems from paying into a social safety net program.

Attorneys for Becket point to a brief filed by the GOP-held Wisconsin state Legislature in the Supreme Court case, supporting Catholic Charities. “Which is a pretty good evidence, I think, that it would want the exemption extended, rather than cut back,” said Lund.

Lund says religious exemption law is always complex because of the scope of religious institutions across civic life. Religious groups operate schools, hospitals and community centers that state and local governments may except from certain rules.

“One big question is, if you have a religious exemption, does that religious exemption have to extend to all religious organizations, or can the religious exemption just extend to some religious organizations but not others?” said Lund. “For example, could you exempt religious schools from a certain requirement, but not religious hospitals?”

In his brief, Kaul argues that, indeed, to avoid having to exempt major religious hospital systems from the unemployment system, Wisconsin must end the exemption entirely. However this next step of complying with the high courts’ order shakes out, Lund says, the Wisconsin Supreme Court is likely to weigh in on Kaul’s request.

And if the state Legislature doesn’t like the outcome, it could pass a law to clarify this aspect of religious exemption law, so long as it also complies with the constitutional outcome of the U.S. Supreme Court case.

At its heart, the whole case “exposes a sort of deep disagreement about what the ‘church’ is in ‘separation of church and state,’” Lund said. One argument is that all parts of a religious institution are “equally sacred and therefore equally autonomous,” he said.

The other argument holds that religious organizations contain layers: core functions of a religious principle or doctrine, surrounded by more peripheral tasks.

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