Opinion ID: 1169485
Heading Depth: 1
Heading Rank: 1

Heading: the disputed exemption

Text: Both the statutory scheme and the administrative proceedings and findings in this case are comprehensively set out in the opinion of the Court of Appeals. In summary, Congress originally exempted charitable, educational, and other tax-exempt organizations from federal unemployment compensation taxes and from obligatory coverage under state unemployment compensation laws. Coverage later was expanded until the present version, enacted in 1976, excludes (apart from ministers and members of religious orders) only employment by a church or convention or association of churches, or by an organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches. 26 U.S.C. § 3309(b)(1). Accordingly, the Legislative Assembly in 1977 amended ORS 657.072, the exemption for nonprofit employers. Previously this section had expressly excluded from coverage services performed (c) In the employ of a school which is not an institution of higher education. After the amendments to conform to changes in FUTA, ORS 657.072(1)(a) provides: (1) `Employment' does not include service performed: (a) In the employ of: (A) A church or convention or association of churches; (B) An organization which is operated primarily for religious purposes and which is operated, supervised, controlled or principally supported by a church or convention or association of churches   . Or. Laws 1977, ch. 446, § 4. The intended significance of repealing the previous express exclusion of schools is important in interpreting the present law. In resisting the imposition of liability for unemployment compensation paid to four of its former employees, petitioner Salem College & Academy, Inc., (hereafter the Academy) claimed that it qualified either as a church or as principally supported by churches within ORS 657.072(1)(a), and that otherwise the imposition of coverage on it would violate a number of state and federal constitutional guarantees. After a hearing, the Employment Division rejected these contentions and affirmed the tax assessment. The Court of Appeals described the Academy as follows: Petitioner is an interdenominational Christian primary and secondary school founded in Salem in 1945 by the pastor and laymen of a local church. It is organized as a nonprofit corporation, registered with the Oregon Department of Education, exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code and governed by a 16-member Board of Trustees. It enrolls 750 students and employs approximately 50 teachers, in addition to administrative and staff personnel. Its expenses average approximately $1400 per student per year, revenues are derived from tuition and donations, and the average student tuition is $1,200 per year. One of the petitioner's principals summarized the purpose of the school: `[Its] purpose is to teach and train children and young people to a life of service to God. It makes no difference if that service is as a lawyer or a doctor or a plumber: the whole focus of living is to please God. And that is why we exist, to train every single child that they'll function in society, in their church, in their home in a way that honors God.' Specific religious training includes daily Bible study, prayer and twice-weekly chapel services. Moreover, petitioner's Parent and Student Handbook provides: `The place of Christ is paramount in education, and should permeate every phase of the school-academics, athletics, activities, the lunchroom, playground, etc. Jesus Christ is not appendage to education, He is the center of it.' All staff, including maintenance personnel, school administrators, school store operator and teachers are presented to students as examples of faith-in-action and are expected to proclaim the teachings of Jesus Christ to the students. Teachers are selected on the basis of their ability to teach from `God's perspective' and are expected to exert a spiritual influence on the lives of their students. All teaching must accord with petitioner's doctrinal statement of faith, and the teaching of doctrine peculiar to any denomination is forbidden. Each teacher must be an active member of a local church. Each teacher is evaluated annually and is subject to dismissal if his or her performance does not meet petitioner's standards. In addition, all staff are subject to dismissal for failure to comply with petitioner's code of ethics. Among other things, the code requires that each staff member be a `regenerated person, who is confident of the leading of the Holy Spirit to the work here as his opportunity to make Christ known by life and word.' Petitioner is not affiliated with any specific church or denomination and is open to students of all denominations. Approximately 60 to 80 local churches participate in petitioner's activities. In selecting board members, petitioner attempts to have a fair representation of the churches that send it students. Petitioner's personnel serve as substitute pastors, and the local clergy serve as substitute teachers and speak at chapel services. The local churches encourage enrollment in the school and contribute funds or encourage their members to do so. Petitioner could not survive if it lost the support of the major churches in Salem's evangelical community. 61 Or. App. at 618, 659 P.2d at 417. The referee concluded that the Academy is not itself a church nor principally supported by a church or convention or association of churches as those terms are used in the law. The Court of Appeals held that these administrative determinations were not erroneous, and that it therefore had to consider the constitutionality of the distinction between religious schools like the Academy and otherwise identical religious schools like the Academy and otherwise identical religious schools closely affiliated with one or more churches. Id. at 625, 659 P.2d at 420.