WASHINGTON (Reuters) - The U.S. Supreme Court appeared sympathetic on Monday toward a bid by an arm of a Catholic diocese in Wisconsin for a religious exemption from the state's unemployment insurance tax in the latest religious rights case to reach the justices.

The justices heard arguments in an appeal by the Catholic Charities Bureau - a nonprofit corporation operating as the social ministry arm of the Catholic diocese in the city of Superior - and four entities that the bureau oversees of a lower court's decision rejecting their tax exemption bid.

At issue was whether the denial of the tax exemption violated the U.S. Constitution's First Amendment guarantee of free exercise of religion, as well as its separation of church and state. 

The Supreme Court, with its 6-3 conservative majority, has taken an expansive view of religious rights in a series of rulings in recent years. President Donald Trump's administration is supporting the Catholic Charities Bureau and the other challengers in the appeal. 

During the arguments, conservative and liberal justices alike questioned why Wisconsin appeared to be treating some religions more beneficially than others in granting a tax exemption.

"I thought it was pretty fundamental that we don't treat some religions better than other religions and we certainly don't do it based on the content of the religious doctrine that those religions preach," liberal Justice Elena Kagan told Wisconsin Assistant Attorney General Colin Roth.

"Isn't it a fundamental premise of our First Amendment that the state shouldn't be picking and choosing between religions," added conservative Justice Neil Gorsuch. 

During the Great Depression, Wisconsin in 1932 became the first U.S. state to enact an unemployment compensation law, which collects taxes from employers and provides a temporary source of income to jobless workers.

Three years later, Democratic President Franklin Roosevelt signed into law the landmark Social Security Act of 1935 that established, among other programs, a cooperative federal-state unemployment insurance plan that would eventually lead to all U.S. states enacting their own unemployment relief programs.

The federal government and all states exempt certain religious entities from having to pay into unemployment insurance programs. Most of these laws, including Wisconsin's, require that organizations be "operated primarily for religious purposes" to be eligible for a religious exemption. 

The Catholic Charities Bureau since 1917, it said on its website, has provided "services to the poor, the disadvantaged, the disabled, the elderly and children with special needs as an expression of the social ministry of the Catholic Church in the Diocese of Superior."

Wisconsin state officials in 1972 determined that the group was subject to the state's unemployment insurance tax. But after a subsidiary of the Catholic Charities Bureau in a separate case was deemed by a state court to be tax exempt, the bureau and four of its other subsidiaries in 2016 also sought religious exemptions.

Among the subsidiary groups involved in the case before the Supreme Court are organizations that provide services to people with disabilities including job placements and training, as well as daily living services and home visitation, according to court papers. The Catholic Charities Bureau and these subsidiary groups do not require their employees to be of any particular religion, nor do they seek to instill Catholic beliefs in those who benefit from their services.

The Wisconsin Supreme Court in 2024 rejected the tax exemption bid, finding that although the groups "assert a religious motivation behind their work," their activities were "primarily charitable and secular" and thus were not "operated primarily for religious purposes." 

The challengers have argued that the Wisconsin Supreme Court's ruling violates the First Amendment "by favoring some religions over others, entangling courts in religious questions, and interfering with church autonomy."

Secular advocacy groups told the Supreme Court that a win for Catholic Charities Bureau would be far-reaching. 

The legal rationale offered by the Catholic Charities Bureau "would allow all religiously affiliated organizations, including six of the 10 largest health systems in the U.S., to exempt themselves from unemployment insurance and numerous other government regulations," the Freedom from Religion Foundation said in a written brief. 

That would put hundreds of thousands of employees "at risk of losing their unemployment benefits overnight," it added. 

A ruling in the case is expected by the end of June.

The Supreme Court on April 30 is due to hear another case involving Catholic interests. The justices will consider the legality of a bid led by two Catholic dioceses to establish in Oklahoma the nation's first taxpayer-funded religious charter school in a case testing the separation of church and state. 

(Reporting by John Kruzel; Editing by Will Dunham)