LANSING — A coalition of business groups and Republican lawmakers filed an appeal with the Michigan Supreme Court on Monday, arguing that a one-year reduction in the state's personal income tax rate should be made permanent.
The 2022 state revenue spike triggered a provision in state law that lowered the personal income tax rate from 4.25% to 4.05% for the 2023 tax year. That year's reduction was a $150 savings for the couple, whose taxable income was $75,000. The entire state budget cost about $700 million.
Attorney General Dana Nessel interpreted the tax breaks included in the 2015 Highway Funding Act to apply only for one year. Gov. Gretchen Whitmer's administration adopted that interpretation when crafting the state budget for fiscal years 2024 and 2025. But Republicans argued that the purpose of the law was to trigger permanent tax cuts in the event of a spike in revenue.
Two business groups, Associated Builders and Contractors of Michigan and the National Federation of Independent Business, joined Republican lawmakers and other plaintiffs in a 2023 lawsuit asking a judge to declare the tax cuts permanent. They lost in the Michigan Court of Claims, and on March 7, the Michigan Court of Appeals upheld the lower court's decision.
The plaintiffs, who filed the lawsuit with support from the Mackinac Center for Public Policy, appealed to the Michigan Supreme Court.
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At the heart of the case is a disagreement over what the term “current rate” means under the 2015 law. The state claims this refers to the 4.25% tax rate that was in place before the 2023 reduction. The plaintiffs claim that after the reduction, the “current tax rate” was 4.05%.
Patrick Wright, vice president of legal affairs at the Mackinac Public Policy Center and lead attorney on the appellate court, said Monday that the word “current” would no longer be needed in the bill unless it refers to an interest rate other than 4.25%.
A three-judge panel of the Michigan Court of Appeals ruled in a unanimous March 7 ruling that the law is clear that Michigan's default personal income tax rate is 4.25%, and that the revenue He said an annual analysis would need to be conducted to see if it was high enough. Activate reduction for one year.
“There is no language suggesting that if the exception is triggered, the reduced tax rate calculated according to the statutory formula will become the new permanent default rate in place of the 4.25% default rate,” the committee said.
“Under Plaintiffs' interpretation, each tax reduction would be permanent, allowing for compounding tax reductions that could ultimately result in zero income taxes.”
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In their appeal, the plaintiffs pointed out that both the House Fiscal Service and the Senate Fiscal Service had at various times interpreted the 2015 law to mean that once the rate reduction was triggered, it would be a permanent tax reduction.
Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on X (@paulegan4).
