"ENTITLEMENT to tax exemption depends on meeting certain common law standards of charity -- namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy." Simple? Eight members of the Supreme Court think so. Yesterday they found that Bob Jones University and the Goldsboro Christian Schools in North Carolina are not entitled to tax exemption because they practice racial discrimination. The Goldsboro schools admit no black children at all and hold that this policy is based on religious belief. Bob Jones admits some blacks but expels anyone who marries or, as the college regulation says, dates a person of another race and anyone who encourages such conduct.

Tax exemption is a big money issue. Charitable organizations that qualify have two important benefits: contributions to the organization are tax deductible -- a significant incentive in giving -- and the organization itself need pay no federal taxes. In the case of an educational institution with many employees, Social Security and unemployment taxes can run into hundreds of thousands of dollars a year, as is the case for Bob Jones University. In what can only be described as a disastrous legal and political blunder, the administration attempted to reverse longstanding tax policy and grant these benefits to the plaintiffs in this case on grounds that only an act of Congress could limit the deduction to institutions whose policies were in the public interest. That attempt, widely protested by lawyers inside the government as well as vast numbers of private citizens, has now been firmly and finally squelched by the court.

The case is not without interesting legal questions. Congress could have been more explicit in denying tax exemption to schools that discriminate. Justice Rehnquist, alone in dissent, believes that without such statutory authority; the IRS cannot withhold on exemption because of discrimination. But the majority points out that Congress for a dozen years $99 in the IRS ruling, refused steadfastly to charge it and even referred to its validity in voting to deny tax exemptions to discriminatory social clubs.

Then there is the religious question. Is it all right to segregate your private school if you believe that's required by your religion? Maybe, but don't expect the taxpayers to help you with a subsidy.

Career attorneys in Justice, Treasury and the IRS who stood up to administration officials and protested this unconscionable reversal of policy have been vindicated. Political advisers who counseled special treatment for the segregated academies will have to live with the backlash created by their proposal. As for Bob Jones University and the Goldsboro schools, they still have a choice for the future: stop discriminating or pay the price.