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In October 1984, a trial was held to decide if the city of Rajneeshpuram had the right to be legally recognized. The reason for discourse was the separation of church and state dictated by the First Amendment and the Oregon constitution. The city of Rajneeshpuram would've been located in the commune, excluding a country road. No one could enter without Sheela's consent, meaning Oregon tax money would fuel the commune. The court ruled in Oregon's favor, never recognizing the city.
If the facts alleged in the State of Oregon's complaint are true, the court concludes that the potential injury to the anti-establishment principle of the first amendment by the existence and the operation of the City of Rajneeshpuram clearly outweighs the potential harm to defendants' free exercise of religion rights. To deny defendants the right to operate a city is the only means of achieving a compelling state and federal interestthat of avoiding an establishment of religion. If the City of Rajneeshpuram were to cease to exist, defendants would not be precluded from practicing their religion nor from associating with whom they choose in order to do so. Defendants would not be denied access to public services. Public services would be provided by Wasco County. In short, although defendants' freedom to freely practice their religion would be burdened if the City of Rajneeshpuram were no longer recognized as a city, the burden upon them is small and indirect compared to the harm to be done to the Establishment Clause by allowing the City of Rajneeshpuram to operate as a city.
~"Oregon v. City of Rajneeshpuram, 598 F. Supp. 1208 (D. Or. 1984)," Justia U.S. Law.
"The unique and pervasive interrelationship of the City of Rajneeshpuram with corporate entities created for and dedicated to the advancement of a particular religion, i.e., Rajneeshism, raises fundamental questions as to whether it would violate Article I, sections 2, 3, 4, and 5 of the Oregon Constitution and the Establishment Clause of the First Amendment to the United States Constitution, for the State of Oregon to recognize the City of Rajneeshpuram as a valid municipal corporation and to accord to it the various benefits and powers, including the payment of revenue sharing monies, as provided by state law."
~"Oregon v. City of Rajneeshpuram, 598 F. Supp. 1208 (D. Or. 1984)," Justia U.S. Law.
Osho tried to escape deportation by fleeing the U.S. by plane with several followers but got caught by the FBI. After Osho was deported in 1985 there was no one to take responsibility for his followers who fell into disarray. In the chaos, they ended up disbanding the commune. Despite his death in 1990 he still has loyal followers.
"1983 Letter to Governer Atiyeh opposing the Rajneesh community," (Pacfic Universty Oregon.)