The United States Supreme Court was asked to consider whether a religious school was entitled to state funds to resurface its playground. The preschool and day care center, which operated on church property, submitted a state grant application to install a playground surface made from recycled tires to replace the pea gravel surface beneath the play equipment. The state awarded 14 grants, but although the center ranked fifth out of the 44 applicants, it did not receive funds because the center was owned and controlled by a church.

The center sued, alleging that the failure to approve the application violated the Free Exercise Clause of the First Amendment of the U.S. Constitution, which prohibits the government from outlawing or restricting the exercise of a religious practice. The district court dismissed the case, ruling that the First Amendment does not prohibit withholding a benefit on account of religion. The court of appeals agreed and the case was appealed to the U.S. Supreme Court.

In a 7-2 ruling, the Supreme Court reversed the decision and held that the center was entitled to receive money from the grant. In doing so, it stated that the state could not deny the center an otherwise available public benefit because doing so would impose a penalty on the free exercise of religion. This is because the center could not participate in a government benefit program without having to disavow its religious status. When the state conditions a benefit in this way, it has imposed a penalty on the free exercise of religion.