Judge Rules on Michigan Income Tax Cut

By Rose White, mlive.com.
(via TNS)

A temporary cut to Michigan’s income tax will not be made permanent under a judge’s ruling this week.

Michigan Court of Claims Judge Elizabeth Gleicher ruled Thursday, Dec. 21 the income tax rate can revert back to a default 4.25% on Jan. 1, 2024 after it was lowered to 4.05% due to an increase in state revenue. The ruling sides with Gov. Gretchen Whitmer’s administration, arguing the tax cut was temporary in response to a lawsuit that claimed it should be permanent.

The lower rate resulted in a $714 million decrease in state revenue.

It happened because a 2015 law passed by Republicans dictated income taxes be lowered when revenue grew faster than inflation. Michigan’s revenue was higher due in part to federal COVID-19 relief.

Gleicher wrote the “triggering condition” is based on how the economy changes each year.

“When the percentage increase in state revenue in the previous fiscal year is greater than the inflation rate, and the inflation rate is positive, then the legislature has determined that the state can provide relief to taxpayers,” the opinion said. “That situation is temporary. Logically, it would make little sense to provide a permanent tax cut based on economic circumstances that exist in one calendar year.”

The August lawsuit was filed by the Mackinac Policy Center, a self-described free market thinktank based in Midland, on behalf of two Michigan lawmakers, two business groups and six residents.

In a March opinion, Michigan Attorney General Dana Nessel advised Treasurer Rachel Eubanks that the cut should only last a year because the increase in revenue was not permanent. But the lawsuit argued the tax cut was intended to be permanent.

At issue was the word “current.”

Michigan law states that “if certain conditions are met, then the current rate will be reduced.” Both plaintiffs and the defendants cited Merriam-Webster’s online dictionary to define current but interpreted it differently.

The lawsuit argued “current” means the new tax rate must stay put until a new economic trigger lowers it. Gleicher, siding with the state, wrote that current means “existing at the present time,” so the default rate of 4.25% will remain in effect each year unless there are “triggering events.”

Gleicher also said the plaintiffs’ claims lack standing and ripeness because the tax rate has not been set yet.

“No individual taxpayer-plaintiff has paid income tax, had any income tax withheld or received a tax assessment based on the 2024 tax rate,” she wrote. “As even plaintiffs acknowledge, defendant’s interpretation of the 2024 tax rate will not begin to affect Michigan taxpayers until at least Jan. 1, 2024.”

Plaintiffs in the case were Sen. Ed McBroom, R-Vulcan, Rep. Dale Zorn, R-Onsted, the National Federation of Independent Businesses, Associated Builders and Contractors of Michigan and a group of residents.

The Mackinac Center for Public Policy says it plans to appeal the decision.

“The law was drafted so that any income tax rate reduction would be permanent,” Zorn said in a statement. “This fundamental error should be corrected on appeal.”

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