Source: http://www.law.cornell.edu/supremecourt/text/451/772
Timestamp: 2014-03-12 17:06:49
Document Index: 368240077

Matched Legal Cases: ['§ 3309', '§ 61', '§ 3309', '§ 61', '§ 3306', '§ 533', '§ 104', '§ 3309', '§ 115', '§ 3309', '§ 3309', '§ 61', '§ 61', '§ 61', '§ 61', '§ 61', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3306', '§ 3306', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3309', '§ 3306', '§ 3302', '§ 3304', '§ 3304']

ST. MARTIN EVANGELICAL LUTHERAN CHURCH and Northwestern Lutheran Academy, Petitioners, v. State of SOUTH DAKOTA. | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews ST. MARTIN EVANGELICAL LUTHERAN CHURCH and Northwestern Lutheran Academy, Petitioners, v. State of SOUTH DAKOTA.
451 U.S. 772 (101 S.Ct. 2142, 68 L.Ed.2d 612)
ST. MARTIN EVANGELICAL LUTHERAN CHURCH and Northwestern Lutheran Academy, Petitioners, v. State of SOUTH DAKOTA.
Petitioner Church, located in South Dakota, is a member of the Wisconsin Evangelical Lutheran Synod. It operates an elementary Christian day school that is not a separate legal entity from the Church, but is financed by the Church's congregation and controlled by a Board elected from the congregation. Petitioner Academy is a secondary school in South Dakota owned, supported, and controlled by the Synod, and it also is not separately incorporated. Petitioners claim exemption with respect to their school employees from unemployment compensation taxes imposed by the Federal Unemployment Tax Act (FUTA) and South Dakota's complementary statute. Title 26 U.S.C. 3309(b) provides an exemption with respect to, inter alia, "service performed(1) in the employ of (A) a church or convention or association of churches, or (B) an organization . . . which is operated, supervised, controlled, or principally supported by a church or a convention or association of churches." A previous exemption under § 3309(b)(3) for service performed in the employ of a school that is not an institution of higher education was repealed in 1976 when FUTA was amended. After petitioners' unsuccessful administrative appeal from South Dakota's imposition of the taxes upon them and a successful appeal to a state court, the South Dakota Supreme Court held petitioners subject to the taxes.
Petitioners, St. Martin Evangelical Lutheran Church (St. Martin), at Watertown, S.D., and Northwestern Lutheran Academy (Academy), at Mobridge in that State, claim exemption with respect to their school employees from taxes imposed by the Federal Unemployment Tax Act (FUTA), 26 U.S.C. 3301-3311 (1976 ed. and Supp.III), and by South Dakota's statutes complementary thereto, S.D. Codified Laws § 61-1-1 et seq. (1978 and Supp.1980). The exemption is claimed on both statutory and First Amendment grounds. The provisions primarily at issue are FUTA's § 3309(b)
and South Dakota's § 61-1-10.4.
Proper understanding of the effect of the 1976 amendment requires a review of FUTA's development. From 1960 to 1970, FUTA, by § 3306(c)(8), unrestrictedly excluded from the definition of "employment" all "service performed in the employ of a religious, charitable, educational, or other organization described in section 501(c)(3) which is exempt from income tax under section 501(a)." Pub.L. 86-778, § 533, 74 Stat. 984.
See Employment Security Amendments of 1970, Pub.L. 91-373, § 104(b)(1), 84 Stat. 697. The amendment generally required state coverage of employees of nonprofit organizations, state hospitals, and institutions of higher education. Simultaneously, however, Congress enacted a new and narrower exemption of nonprofit organizations and governmental entities. So far as pertinent to this case, that exemption was set forth in a new § 3309(b), which then provided:
"This section shall not apply to service performed
In 1976, Congress again amended the Act. Unemployment Compensation Amendments of 1976, Pub.L. 94-566, § 115(b)(1), 90 Stat. 2670. The effect of the 1976 amendment, so far as pertinent to this case, was to eliminate completely the theretofore existing subsection (b)(3).
Subsections (b)(1) and (b)(2), dealing specifically with religious employment, remained unchanged.
The Secretary also ruled that neither § 3309(b)(1)(A) nor § 3309(b)(1)(B) was applicable to church-run schools. He notified the States, and they took steps for the collection of unemployment taxes from church-related schools. See Employment and Training Administration, U.S. Department of Labor, Unemployment Insurance Program Letter No. 39-78 (May 30, 1978), reprinted in 1978 Transfer Binder CCH Unemp.Ins.Rep. ¶ 21,522.
Both St. Martin and the Academy are members of the Wisconsin Evangelical Lutheran Synod and, as such, are organizations exempt from federal income tax under 26 U.S.C. 501(c)(3). St. Martin operates a state-certified elementary Christian day school at Watertown that offers kindergarten through eighth-grade education. The school, which is not a separate legal entity from the church, is controlled by a Board of Education elected from the local congregation. The congregation entirely finances the school's operation. The Academy is a state-certified 4-year secondary school at Mobridge and is owned, supported, and controlled by the Synod. It, also, is not separately incorporated. Approximately half of its students go on to become ministers within the Church. According to the record, all courses given at St. Martin and at the Academy are taught from a religious point of view based on the Synod's scriptural convictions.
When South Dakota proposed to tax them under § 61-1-10.3, petitioners took an administrative appeal. The Appeals Referee of the State's Department of LaborUnemployment Insurance Division ruled that service performed by employees of each petitioner was "employment" within the meaning of the statute. Although finding that the Synod "believes a theological basis exists for their schools" and operates them because it "holds the conviction that training of the youth involves both education and religion and that the two are so closely interwoven they cannot be separated," App. to Pet. for Cert. A-36, the Referee declined to rule that petitioners were exempt under § 61-1-10.4, the state analogue to 26 U.S.C. 3309(b). See nn. 1 and 2, supra. He ruled that petitioners were not eligible for exemption under § 61-1-10.4(1)(a) because, in his view, the term "church," as used in that section referred only to the "individual 'house of worship' maintained by a particular congregation." App. to Pet. for Cert. A-43. He also ruled, ibid., that they were ineligible for exemption under § 61-1-10.4(1)(b) because "the primary purpose of the schools is education."
On appeal, the Hughes County Circuit Court reversed, finding the Referee's decision clearly erroneous. App. to Pet. for Cert. A-25. The court ruled that both St. Martin and the Academy were exempt under § 61-1-10.4(1)(b); that the term "church" referred to "an organization of worshippers," rather than to a "house of worship"; and that the primary purpose of the schools was the propagation of the Synod's faith, a religious concern. App. to Pet. for Cert. A-30 to A-33. The South Dakota Supreme Court, by a divided vote, in turn reversed the judgment of the Circuit Court, and held petitioners subject to the unemployment compensation taxes.
In re Northwestern Lutheran Academy, 290 N.W.2d 845 (1980). Noting the growing number of conflicting federal and state decisions on this issue,
we granted certiorari. 449 U.S. 950, 101 S.Ct. 353, 66 L.Ed.2d 214 (1980).
A statute, of course, is to be construed, if such a construction is fairly possible, to avoid raising doubts of its constitutionality. Crowell v. Benson, 285 U.S. 22, 62, 52 S.Ct. 285, 296, 76 L.Ed. 598 (1932); Machinists v. Street, 367 U.S. 740, 749-750, 81 S.Ct. 1784, 1789-90, 6 L.Ed.2d 1141 (1961); United States v. Clark, 445 U.S. 23, 27, 100 S.Ct. 895, 899, 63 L.Ed.2d 171 (1980). Accordingly, we turn first to the federal statute itself. From our reading of the legislation and of its history, we conclude that the only reasonable construction of 26 U.S.C. 3309(b)(1) is one that exempts petitioners' church-run schools, and others similarly operated, from mandatory state coverage.
Section 3309 was added to FUTA in 1970. Although the legislative history directly discussing the intended coverage of its subsection (b)(1) is limited,
The above quotation from the 1969 House Report, and its Senate counterpart, however, are susceptible of a simpler and more reasonable explanation that corresponds directly with the language of the subsection. Congress drew a distinction between employees "of a church or convention or association of churches," § 3309(b)(1)(A), on the one hand, and employees of "separately incorporated" organizations, on the other. See H.R.Rep. No. 91-612, at 44. The former uniformly would be excluded from coverage by § 3309(b)(1)(A), while the latter would be eligible for exclusion under § 3309(b)(1)(B) only when the organization is "operated, supervised, controlled, or principally supported by a church or convention or association of churches."
To hold, as respondent would have us do, that "organization" in subsection (b)(1)(B) also includes a church school that is not separately incorporated would make (b)(1)(A) and (b)(1)(B) redundant.
The distinction between church schools integrated into a church's structure, and those separately incorporated, is given further credence by the statute's use of specific words. The Department of Labor would interpret the term "church" in § 3309(b)(1) as limited to the actual house of worship used by a congregation. See Brief for United States as Amicus Curiae 14-15.
This reading, however, appears to us to deny several of FUTA's phrases their intended meaning. Section 3309(b), exempting "service performed(1) in the employ of (A) a church . . .," is phrased entirely in terms of the nature of theemployer, and not in terms of the work performed or the place at which the employee works. Congress further defined "employer" in § 3306(a) as "any person who. . . paid wages . . . or . . . employed at least one individual" (emphasis added). It defined "employee" as "any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee." §§ 3306(i) and 3121(d)(2). Thus, to hold "church" synonymous solely with a physical building that is a house of worship contradicts the phrasing of the statute.
The word "church" in § 3309(b) must be construed, instead, to refer to the congregation or the hierarchy itself, that is, the church authorities who conduct the business of hiring, discharging, and directing church employees.
We conclude that, at the time of its enactment in 1970, § 3309(b)(1)(A) was meant to apply to schools, like petitioners', that have no separate legal existence from a church, or, as in the Academy's case, from a "convention or association of churches." As the Referee found, St. Martin directly finances, supervises, and controls its school's operations. The Synod similarly supports and controls the Academy. Only teachers trained and certified by the Synod may teach at either school, and, again as the Referee found, these teachers, both male and female, "receive a divine, life-long call" to the church. App. to Pet. for Cert. A-38. Male teachers ("teaching ministers") have equal status in the church and an equal vote on Synod matters, including matters of doctrine, with preaching ministers. Id., at A-37. Neither school has a separate legal existence. Thus, the employees working within these schools plainly are "in the employ . . . of a church or convention or association of churches . . . ."
§ 3309(b)(1)(A).
The 1976 Amendments did not alter the scope of § 3309(b)(1), either directly or by implication.
Congress, in eliminating the old § 3309(b)(3), made no change in § 3309(b)(1). It did not discuss churches or church schools, and it intimated that § 3309(b)(1) remained unchanged. See, e. g., H.R.Rep. No. 94-755, pp. 23, 41, 55-56 (1975) (explaining the then-current coverage of § 3309(b) and the anticipated effect of the repeal, and containing no indication that the proposed amendments would alter § 3309(b)(1)).
Respondent places particular emphasis on legislative statements expressing an intention, for example, to extend coverage "on the basis of services performed for all educational institutions," H.R.Rep. No. 94-755, at 56,
and to "employees of non-profit elementary and secondary schools," id., at 2. See also id., at 41 ("This section requires States, as a condition for tax offset credit to their employers, to extend coverage to employees of non-profit primary and secondary institutions of education, thus broadening present required coverage limited to non-profit institutions of higher education"); S.Rep. No. 94-1265, pp. 2, 9-10 (1976), U.S.Code Cong. & Admin.News 1976, p. 5997.
There is no indication that Congress, in these references, had in mind the scope of § 3309(b)(1) and religious organizations. Rather, all the evidence demonstrates that it was concerned solely with the then-existing § 3309(b)(3) and secular educational institutions, particularly the public schools. Furthermore, the reported comments implying total coverage of all educational institutions, as a result of the repeal of the former § 3309(b)(3), could not be taken as literally true because the 1970 Report expressly had noted that a college "devoted primarily to preparing students for the ministry," H.R.Rep. No. 91-612, at 44, would be exempt. All institutions of higher education had not been covered by the 1970 Amendments.
Respondent also relies on a single statistic estimating the number of employees newly to be covered as a result of the repeal of the then § 3309(b)(3). See S.Rep. No. 94-1265, at 8 (table). This statistical reference to the effect that 242,000 employees of nonprofit organizations would be covered by the 1976 repeal of subsection (b)(3), is much too meager to sustain respondent's position. The Committee Report's table containing this figure is devoid of any explanation, source, or supporting data. The South Dakota Supreme Court relied on the figure, however, reasoning that because it "approximates the total number of teachers in all non-profit elementary and secondary schools" in 1975,
290 N.W.2d, at 849, and n. 5, Congress must have included within that number religious-school teachers, who constitute more than half the staff of all private elementary and secondary schools in the United States. Yet, in repealing § 3309(b)(3), Congress intended to include not just full-time teachers, but all employees of the newly covered nonprofit private elementary and secondary schools (custodians, cafeteria workers, nurses, part-time help, counselors, etc.). Thus, the inclusion of all employees in nonprofit private lower schools within the number of persons brought within FUTA by the repeal would far exceed the 242,000 contained in the Report's table, rendering it, in our view, of dubious significance for the present issue.
The legislative history of the Unemployment Compensation Amendments of 1976, 90 Stat. 2667, persuades me that Congress did intend the repeal of 26 U.S.C. 3309(b)(3) to remove the exemption from coverage under the Federal Unemployment Tax Act (FUTA) for all employees of private, nonprofit elementary and secondary schools. Not only do the Senate and House Committee Reports expressly so state,
but also the estimate contained in the Senate Report of the number of additional employees that would be covered by the FUTA as a result of the repeal of § 3309(b)(3) confirms the contemporaneous understanding of the draftsmen of the 1976 Amendments.
Nothing in the 1976 Amendments or the corresponding legislative history suggests that Congress believed the extension of FUTA coverage to nonprofit, private schools applied only to nonprofit, private, nonparochial schools.
Failure to follow that approach led this Court into what I regard as manifest error in its recent summary, per curiam affirmance in HCSC-Laundry v. United States, 450 U.S. 1, 101 S.Ct. 836, 67 L.Ed.2d 1 a case in which the taxpayer's claim for exemption had equally strong support in the statutory text and, in my opinion, greater support in the legislative history than is true here. See id., at 19-23, 101 S.Ct., at 845-847 (STEVENS, J., dissenting). Today, although I agree that the Court reaches the result required by the text of the FUTA, I write this separate statement to emphasize that this result is not supported by the legislative history of the 1976 Amendments, nor is it consistent with the Court's contrary resolution of the parallel tax exemption issue in HCSC-Laundry.
Title 26 U.S.C. 3309(b) reads in pertinent part:
FUTA imposes an excise tax on "wages" paid by an "employer" in covered "employment," 26 U.S.C. 3301, as these terms are statutorily defined. § 3306 (1976 ed. and Supp.III). An employer, however, is allowed a credit of up to 90% of the federal tax for "contributions" paid to a state fund established under a federally approved state unemployment compensation law. § 3302 (1976 ed. and Supp.III). The requirements for federal approval are contained in §§ 3304 and 3309 (1976 ed. and Supp.III), and the Secretary of Labor must annually review and certify the state plan. §§ 3304(a) and (c) (1976 ed. and Supp.III). All 50 States have employment security laws implementing the federal mandatory minimum standards of coverage. A State, of course, is free to expand its coverage beyond the federal minimum without jeopardizing its federal certification.
The United States argues that Congress must have intended, by the 1976 Amendments, to include church-related school employees within mandatory state coverage because the 1976 Amendments were passed, in part, to replace the temporary Special Unemployment Assistance program (established under the Emergency Jobs and Unemployment Assistance Act of 1974, 88 Stat. 1845), which provided benefits to practically all workers not then covered under the permanent FUTA provisions, including employees of church schools. Brief for United States as Amicus Curiae 8-10. That special program, however, was funded entirely with federal money, without any employer contribution, and the 1976 Amendments did not attempt entirely to duplicate its coverage; indeed, those Amendments established new, precise exemptions for a narrow group. See 26 U.S.C. 3309(b)(3) (the new provision exempting certain government employees); 122 Cong.Rec. 33274-33276 (1976) (remarks of Sen. Nelson); id., at 33277-33278 (remarks of Sen. Williams).