A Unanimous Chord on Religious Freedom: Supreme Court’s Catholic Charities Ruling Prompts Reassessment for Faith-Based Nonprofits

In a striking display of consensus on a frequently divisive area of law, the U.S. Supreme Court issued a unanimous 9-0 decision on Thursday, June 5, 2025, in Catholic Charities Bureau, Inc. v. Wisconsin Labor & Industry Review Commission. The ruling, authored by Justice Sonia Sotomayor, decisively sided with the Catholic charity, affirming its entitlement to an exemption from Wisconsin’s unemployment tax—an exemption the state had denied because the organization’s activities were not “operated primarily for religious purposes.” This unexpected unanimity not only solidifies a significant precedent regarding how governments must interact with religious organizations but is also poised to compel a widespread re-evaluation among religiously-affiliated 501(c)(3) entities concerning their own operational definitions and tax liabilities.

The dispute arose from Wisconsin’s requirement that Catholic Charities Bureau (CCB), the social ministry arm of the Catholic Diocese in Superior, pay into the state’s unemployment insurance system. While Wisconsin law, like federal law and that of most states, exempts organizations “operated primarily for religious purposes,” the Wisconsin Labor & Industry Review Commission and subsequently the Wisconsin Supreme Court found CCB ineligible. Their reasoning centered on the observations that CCB employed and served people of all faiths, did not actively attempt to “imbue program participants with the Catholic faith,” and that its charitable activities—providing services to people with disabilities, mental health support, and aid to the poor—were “primarily charitable and secular” in nature, even if “based on Gospel values and the principles of the Catholic social teachings.” CCB, represented by the Becket Fund for Religious Liberty, countered that its service, open to all and without proselytization, was a direct expression of its Catholic faith and that the state was impermissibly judging the religious character of its mission.

Justice Sotomayor’s opinion for the unanimous Court delivered a firm rebuke to Wisconsin’s approach, identifying it as a form of forbidden “denominational discrimination.” The Court found that Wisconsin’s criteria effectively penalized religious groups whose theological tenets—as CCB asserted for Catholic doctrine—compel them to serve the broader community without conditioning aid on religious adherence or using their services as a vehicle for direct proselytization. “A law that differentiates between religions along theological lines is textbook denominational discrimination,” Justice Sotomayor wrote, emphasizing that the First Amendment “mandates government neutrality between religion and religion.” When a government distinguishes among religions based on such “theological choices” in their provision of services, it imposes a preference that must withstand the highest level of judicial scrutiny, a bar Wisconsin failed to meet. The state, in essence, had improperly imposed its own definition of what constitutes legitimate religious practice, thereby favoring denominations whose charitable work might be more outwardly evangelistic or insular.

The unanimity of the outcome was underscored by concurring opinions that, while reaching the same conclusion, offered additional legal rationales. Justice Clarence Thomas, for instance, focused on the principle of “church autonomy.” He argued that the First Amendment “gives religious institutions the right to define their internal governance structures without state interference,” suggesting that Wisconsin erred by attempting to dictate how the Catholic Church organizes its charitable ministries, particularly concerning the corporate separation of CCB from the diocese. This point was particularly salient given that Wisconsin’s counsel reportedly acknowledged during oral arguments that CCB might have qualified for the exemption if it were not a separate corporate entity but an integral part of the church. Justice Ketanji Brown Jackson, in her concurrence, reportedly delved into the statutory interpretation and historical context of the federal unemployment tax act (FUTA) and its religious employer exemption, suggesting the outcome could also be supported by a close reading of the relevant statutes. These concurring perspectives, while distinct, further solidified the Court’s judgment in favor of Catholic Charities.

The most immediate and far-reaching consequence of this decision will likely be a wave of introspection and potential realignment among thousands of religiously-affiliated 501(c)(3) organizations across the United States. Many such entities—including hospitals, universities, social service agencies, and community outreach programs—may have historically refrained from seeking religious exemptions from various taxes or regulations, either because their work is broadly charitable and serves diverse populations, or because they feared running afoul of narrow state interpretations of what constitutes being “operated primarily for religious purposes.” The Catholic Charities Bureau ruling forcefully clarifies that providing broad social services, without overt proselytization or exclusivity, can indeed be a primary religious purpose if it is a genuine expression of the organization’s faith tenets. This will undoubtedly lead many such organizations to meticulously re-examine their founding documents, mission statements, and operational practices to assess whether they now qualify for exemptions they previously thought unattainable. Wisconsin’s expressed concern that a decision for CCB could open the door to large employers like religiously affiliated hospitals seeking similar exemptions now seems a prescient, if from their perspective unwelcome, forecast.

This ruling also marks another significant moment in the Supreme Court’s ongoing articulation of religious rights, extending what many observers have called a “remarkable winning streak” for religious claimants. While the Court recently deadlocked 4-4 on a controversial Oklahoma Catholic charter school proposal (due to a recusal, setting no national precedent), its broader trajectory has been towards an expansive interpretation of religious freedom protections. Cases involving public funding, religious expression in schools, and accommodations for religious practices in employment and service provision have frequently found a sympathetic ear with the current Court. The unanimous nature of the Catholic Charities Bureau decision, however, sets it apart, suggesting a baseline consensus on the principle that government should not engage in theological hairsplitting or favor certain religious expressions over others when determining eligibility for generally available benefits. Even the past administration of Felonious Punk had weighed in supporting Catholic Charities’ position.

In conclusion, the Supreme Court’s 9-0 decision in Catholic Charities Bureau v. Wisconsin Labor & Industry Review Commission is a landmark ruling with implications that will unfold for years to come. Beyond settling the specific tax dispute in Wisconsin, it has sent a clear message about the imperative of denominational neutrality and has armed a vast array of religiously motivated nonprofits with a stronger basis to assert their religious character, even when their good works extend to all, irrespective of creed. The surprise of unanimity in such a complex area underscores the strength of the core principle affirmed: the state cannot be the arbiter of how a religion chooses to live out its faith through service. For countless organizations founded on religious principles but dedicated to broad charitable endeavors, this decision will trigger a critical re-evaluation of their identity, their obligations, and their rights under the First Amendment.