The Supreme Court appeared skeptical Monday of Wisconsin’s decision not to extend tax-exempt status to a division of Catholic Charities, suggesting there is an entanglement problem between the state and religion as the government tries to determine which religions get the benefit and which do not.

The legal battle came before the justices after the Wisconsin Supreme Court rejected the Catholic Charities of the Diocese of Superior’s position that it operates by its faith and should receive a religious exemption from the state’s unemployment insurance tax.

The Wisconsin Supreme Court said Catholic Charities serves and hires people of all faiths and thus cannot be exempt.

Although state law allows religious nonprofits to be exempt from the state’s unemployment compensation program, the state’s highest court said that to get that exemption, Catholic Charities should limit the hiring of employees to only Catholics and proselytize, meaning try to convert the people it serves.

Justices from both the conservative and liberal wing of the court took issue with those requirements, noting that some religions do not believe in proselytizing.

“I thought it was pretty fundamental we don’t treat some religions better than other religions and we certainly don’t do it based on the content that those religions teach,” said Justice Elena Kagan, an Obama appointee. “Why are we treating some religions better than others?”

Justice Clarence Thomas, an appointee of the late President George H.W. Bush, questioned whether it would matter if a charity was incorporated under the church or not.

Colin T. Roth, Wisconsin assistant attorney general, said if the charity were incorporated under the church, it would have been exempt.

“Petitioner’s theory ultimately leads to an all-or-nothing rule. Exempt all religious groups or none. Such a rule could incentive legislators to cut back on religious accommodations altogether,” Mr. Roth said.

He said a court must look at the activities that the group does, not the motive.

“What compelling interest does Wisconsin have in insisting on Catholic Charities being incorporated differently than it is?” asked Justice Neil M. Gorsuch, a Trump appointee. “I’m struggling.”

He said the Wisconsin Supreme Court ruling is telling groups to proselytize and not “help anybody else in need” to get the religious exemption.

“Join our church. Become a member. As opposed to, ’We welcome you to attend our services if you want,’” said Justice Gorsuch. “What is the line there?”

Eric C. Rassbach, the lawyer representing Wisconsin Catholic Charities, said the state was discriminating on theological lines.

“Catholic Charities is an integral part of the Catholic Church,” he said. “Most courts have no difficulty applying religious exemptions constitutionally.”

Curtis E. Gannon, deputy solicitor general for the Justice Department, argued alongside Catholic Charities.

“We don’t think courts should be in the business of saying a particular activity is inherently religious,” he said.

Four states consider an entity’s sincerely held religious beliefs to see if it qualifies for a religious exemption for tax purposes, while four other states — including Wisconsin — decide if an entity’s work is charitable based on whether it is “typical” of a religion, according to a court filing.

The case is Catholic Charities Bureau, Inc., et al. v. Wisconsin Labor & Industry Review Commission, et al.

A decision is expected by the end of June.

• Alex Swoyer can be reached at aswoyer@washingtontimes.com.