Employment Div., Dept. of Human Resources v. Rogue Valley Youth for Christ

Decision Date07 March 1989
Docket NumberT-191
PartiesIn the Matter of the Tax Deficiency Assessment of Rogue Valley Youth for Christ. EMPLOYMENT DIVISION, DEPARTMENT OF HUMAN RESOURCES, W.E. Hunter, Assistant Director for Employment, Petitioner on Review, v. ROGUE VALLEY YOUTH FOR CHRIST, Respondent on Review. ED 85-; CA A41242; SC S34864. . *
CourtOregon Supreme Court

Robert M. Atkinson, Asst. Atty. Gen., Salem, argued the cause for petitioner on review. With him on the petition were Dave Frohnmayer, Atty. Gen., and Virginia L. Linder, Sol. Gen., Salem.

Daniel C. Thorndike, of Blackhurst, Hornecker, Hassen & Thorndike, Medford, argued the cause and filed a response to the petition for respondent on review.

Kelly Clark, of Bouneff, Chally & Marshall, Portland, filed an amici curiae brief on behalf of Ecumenical Ministries of Oregon, Greater Portland Ass'n of Evangelicals, and Christian Legal Soc.

Mildred J. Carmack, of Schwabe, Williamson & Wyatt, Portland, filed an amici curiae brief on behalf of Nineteen Oregon Churches and The Christian Law Ass'n. With her on the brief was Robin S. Hom, of Gibbs & Craze, Burlingame, Cal.

Eugene E. Feltz and Joseph D. McDonald, of Palmer, Feltz, Sherry & Smith, Portland, filed an amici curiae brief on behalf of the Archdiocese of Portland in Oregon and the Diocese of Baker.

Hardy Myers, of Stoel, Rives, Boley, Jones & Grey, Portland, filed an amici curiae brief on behalf of the Archdiocese of Portland in Oregon and the Diocese of Baker. With him on the brief was Casey, Palmer & Feltz, Portland.

GILLETTE, Justice.

In this unemployment compensation taxation case, the Employment Division (Division) seeks to assess unemployment compensation taxes against all religious organizations, including churches, in spite of certain Oregon statutory language to the contrary. The Division claims that the statutory distinction between religious organizations that are churches and similar organizations that are not churches violates the Oregon Constitution. 1 The Court of Appeals did not reach this constitutional issue, finding for the potential taxpayer, Rogue Valley Youth for Christ (Rogue Valley) by ruling that there was no actual controversy and that the Division was seeking a "purely advisory opinion." Employment Div. v. Rogue Valley Youth for Christ, 87 Or.App. 573, 576, 743 P.2d 745 (1987). We conclude that the constitutional issue is properly before us, and reverse the decision of the Court of Appeals.

I. BACKGROUND

This case involves the interworkings of state and federal unemployment tax schemes. The Federal Unemployment Tax Act (FUTA), 26 U.S.C.A. sections 3301-3311 (1988), contains a set a statutory guidelines which a state's unemployment tax program must meet to qualify for federal tax credits. 2 Although compliance is optional, states normally comply in order to avoid subjecting local employers to a double tax. The Oregon legislature has complied. 3

FUTA covers most forms of employment, but there are exceptions in the federal law, including one for service performed

"(1) in the employ of (A) a church or convention or association of churches, or (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."

26 U.S.C.A. § 3309(b)(1). 4 There is no similar provision for an organization operated primarily for religious purposes but not affiliated with a church or group of churches. Thus, according to the federal statute, states must subject religious organizations which are not church-affiliated to unemployment tax or risk losing the federal tax credit.

II. FACTS

On June 11, 1985, the Division informed Rogue Valley that it was an "employer" subject to ORS chapter 657 and would, therefore, be required to pay unemployment payroll taxes. Rogue Valley requested a hearing, contending that it was not an "employer" because, under ORS 657.072, it qualified either as a church or as an organization operated exclusively for religious purposes and principally supported by a church or association of churches. It also contended that the application of Employment Division Law to it would result in excessive governmental entanglement with religion and violate its right to free exercise of religion under both the state and federal constitutions. A hearing was held. The referee found that Rogue Valley was a church and therefore was exempt from unemployment compensation tax. The Division sought judicial review.

In the Court of Appeals, the Division did not challenge Rogue Valley's status as a church. Instead, it contended that, based upon the principles expressed by this Court in Salem College & Academy, Inc. v. Emp. Div., 298 Or. 471, 695 P.2d 25 (1985), it could not constitutionally distinguish between churches and other religious organizations but must tax them all. In Salem College, we held that

"[t]he legislature could not constitutionally exclude from unemployment compensation coverage religious schools and their employees if they are controlled or principally supported by organizations described as 'churches' and extend coverage to otherwise similar religious schools operated by religious organizations that are not 'churches.' The distinction contravenes the equality among pluralistic faiths and kinds of religious organizations embodied in the Oregon Constitution's guarantees of religious freedom."

298 Or. at 495, 695 P.2d 25. The Division contends that these same constitutional concerns prevent it from distinguishing among religious organizations based upon their status. Therefore, the Division contends that it must assess employment taxes against all religious organizations--including churches--in order to keep Oregon in compliance with both FUTA guidelines and the Oregon Constitution. We agree.

III. THE COURT OF APPEALS DECISION

The Court of Appeals declined to reach the constitutional issue, stating that

"[the Division] asserts that the legislature may not constitutionally deny an exemption to a religious organization that is not a 'church' and at the same time grant an exemption to a religious organization that is a 'church.' That issue, however, is not factually presented by this case, because no party here has been denied an exemption on the basis that it is a religious organization that is not a 'church.' Without such an actual controversy, Division cannot raise the issue and thereby seek a purely advisory opinion concerning the constitutionality of the statute."

Employment Div. v. Rogue Valley Youth for Christ, supra, 87 Or.App. at 576, 743 P.2d 745. We disagree.

The Division must administer the law in accordance with constitutional principles, and must enforce its statutory obligations. If a statute tells an agency to do something that a constitution forbids, the agency should not do it. See Cooper v. Eugene Sch. Dist. No. 4J, 301 Or. 358, 362-65, 723 P.2d 298 (1986). Here the agency believes that it cannot constitutionally grant Rogue Valley an exemption while denying one to other non-church religious organizations. It has on that basis attempted to force Rogue Valley to pay taxes which Rogue Valley denies owing. This is an "actual controversy." 5

IV. THE CONSTITUTIONALITY OF ORS 657.072(1)(a)

If Oregon wishes to retain its unemployment tax credit, it must charge unemployment taxes to all religious organizations which do not fit the 26 U.S.C.A. section 3309(b)(1) exclusions. However, nothing in FUTA prohibits Oregon from taxing even excluded organizations. As far as FUTA is concerned, Oregon may require the Catholic church to pay unemployment taxes for the work performed by nuns and monks. The State of Oregon can draw its tax line anywhere it desires, so long as it does not exclude religious organizations FUTA requires be included. See Salem College & Academy, Inc. v. Emp. Div., supra, 298 Or. at 476-77, 695 P.2d 25.

Moreover, the legislature intended to draw the line at the same point as does FUTA. The Oregon exemption statute, ORS 657.072(1)(a), is, word for word, the same as 26 U.S.C.A. section 3309(b)(1). The overriding intent of the legislature notwithstanding, however, the question is whether the Oregon Constitution permits excluding the organizations specified in ORS 657.072(1)(a) from the payment of unemployment taxes while other very similar religious organizations which do not fit the statutory definitions are taxed. It does not.

The core problem involves the definition of the word "church." Defining "church" too narrowly--including, for example, only hierarchical churches such as the Roman Catholic Church,--might comply with FUTA, but it would violate the Oregon Constitution because the protections of the Oregon Constitution extend to worship even outside organized churches. Salem College & Academy, Inc. v. Emp. Div., supra, 298 Or. at 495, 695 P.2d 25. On the other hand, if "church" is defined too broadly, organizations would be exempted from the unemployment tax when FUTA requires that they be included.

It may be possible to expound a judicial test for "church" consistent with both the intent of the Oregon legislature and with FUTA. Any such definition, however, would still face the problem discussed in Salem College--that is, Oregon would still be put in the position of treating unequally what, at least for Oregon constitutional purposes, are religious organizations. Creating such a "distinction contravenes the equality among pluralistic faiths and kinds of religious organizations embodied in the Oregon Constitution's guarantees of religious freedom." Salem College & Academy, Inc. v. Emp. Div., supra, 298 Or. at 495, 695 P.2d 25. Therefore, we hold that Oregon must treat all religious organizations similarly whether or not they would qualify as churches under FUTA or O AR 471-31-090(1)(a).

Our conclusion requires us to address a second question: If the...

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