A reduction last year in the state income tax rate was temporary, according to a unanimous ruling Thursday by a three-judge Michigan Court of Appeals panel.
The decision agrees with a lower court, the Michigan Department of Treasury, and a state attorney general’s legal opinion that the rate returned to 4.25% in the new tax year. The reduction last year was triggered under a law that requires the tax rate to go down if state revenue rises significantly faster than inflation.
In its opinion, the court determined there is no language in the 2015 statute “indicating a legislative intent” that a rollback was automatically supposed to be permanent. Thus, a return to lower revenue levels would restore the earlier income rate.
“Today’s unanimous opinion by the Michigan Court of Appeals has reaffirmed the individual income tax rate change was temporary,” said a statement released by the Michigan Department of Treasury. “We will administer the law as the Courts have ruled and continue to ensure all Michiganders are provided fair and equitable treatment.”
The decision has significant implications for Governor Gretchen Whitmer because her budget proposal for the upcoming fiscal year relies on the revenue generated by the 4.25% rate.
An appeal to the Michigan Supreme Court is very likely.
“The question in this case has always been the clearest reading of the statute,” said Patrick Wright, vice president for legal affairs for the Mackinac Center, which is one of the plaintiffs in the lawsuit. “We remain convinced that the best reading of the law requires a permanent tax cut.”
The plaintiffs also include business groups and two Republican legislators and a half-dozen taxpayers. The deadline for them to file an appeal is March 25.
