Whether the Wisconsin Supreme Court's application of Wis. Stat. § 108.02(15)(h)(2) violates the First Amendment. The issue is whether denying an unemployment compensation tax exemption to organizations that do not proselytize or limit services to co-religionists creates an unconstitutional denominational preference. Specifically, the Court must determine if such a requirement survives strict scrutiny.

• Petitioner argued they are controlled by the Roman Catholic Diocese of Superior and their charitable work is religiously motivated.
• Petitioner contended that Catholic doctrine, specifically the Directory for the Pastoral Ministry of Bishops “Apostolorum Successores” ¶196, prohibits "misusing works of charity for purposes of proselytism."
• Petitioner asserted that by requiring proselytization or exclusive service to Catholics to qualify for the exemption, the State discriminates against religions whose theological commands forbid such practices.
• Petitioner sought a ruling that they are entitled to the tax exemption under Wis. Stat. § 108.02(15)(h)(2).

• Respondent argued that strict scrutiny should not apply because the eligibility criteria for religious accommodations are not the product of "invidious discrimination," citing *Gillette v. United States*.
• Respondent claimed petitioners were excluded because they failed to engage in "distinctively religious activity," defined as activities that "express and inculcate religious doctrine."
• Respondent asserted a compelling state interest in ensuring unemployment coverage for its citizens.
• Respondent argued the law is narrowly tailored to avoid government entanglement in employment disputes that would require the State to decide if employees complied with religious doctrine.

• The Court held that the Wisconsin Supreme Court's application of Wis. Stat. § 108.02(15)(h)(2) violates the First Amendment.
• The Court reasoned that the First Amendment mandates government neutrality between religions, and any state-sponsored denominational preference is subject to strict scrutiny under *Larson v. Valente*.
• The Court found a denominational preference existed because eligibility turned on inherently religious choices—whether to proselytize or serve only co-religionists—rather than "secular criteria" that merely have a "disparate impact," as distinguished in *Larson v. Valente*.
• Under strict scrutiny, the State must prove the law is "closely fitted to further a compelling governmental interest," per *Larson v. Valente*.
• The Court found the interest in ensuring unemployment coverage was not narrowly tailored because petitioners operate their own equivalent compensation system and the law is underinclusive, as it exempts churches performing similar work directly under Wis. Stat. §§ 108.02(15)(h)(1) and (3).
• The Court noted that such underinclusiveness leaves "appreciable damage to [the State's] supposedly vital interest unprohibited," citing *Reed v. Town of Gilbert*.
• Regarding the anti-entanglement interest, the Court found the law overinclusive because it operates at an organizational level, covering all employees regardless of whether they actually inculcate religious doctrine.
• Because the State failed to meet the burden of strict scrutiny, the application of the statute cannot stand.