A new lawsuit filed in the Michigan Court of Claims is trying to make this year’s surplus-driven income tax cut permanent.
At issue is the reading of a 2015 law lowering taxes when state revenue outpaces inflation by a certain amount.
The state Attorney General and Department of Treasury say that reduction is temporary—with the rate bouncing back up from 4.05% to the previous 4.25% next year.
That stance led a coalition that includes state Senator Ed McBroom (R-Vulcan), Representative Dale Zorn (R-Onsted), the Associated Builders and Contractors of Michigan, National Federation of Independent Business, and others to sue.
Mackinac Legal Center Foundation attorney Patrick Wright is representing the plaintiffs. He said viewing the tax reduction as temporary is the wrong way of reading the law.
“The tax cut was meant to be permanent. It is important that we have clarity on this for Michigan’s 4.9 million taxpayers. And we need to know that answer probably before the new tax year starts, the 2024 tax year,” Wright said. “We don’t think that the Attorney General can amend a statute. Only the Legislature can do that.”
In March, Attorney General Dana Nessel wrote a formal opinion detailing her stance that the tax cut should be temporary. She argued the event triggering the tax cut is a temporary circumstance reviewed every year.
“[B]ecause that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the (perhaps unusual) economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well,” Nessel wrote.
But the lawsuit begs to differ. It references a 1983 state law dealing with a similar topic.
It noted the 1983 law uses specific constant numbers to describe intended tax rates while the 2015 law only refers to the “current rate.”
Wright said even an ambiguous reading of the 2015 statute would benefit his case.
“There is a presumption that you construe a statute that is ambiguous against the taxing authority. So, the only way they can win is if the statute is absolutely clear in their favor. We think it’s clear in ours. But even if it’s a tie, we still win,” Wright said.
Outside of the immediate issue of determining Michigan’s income tax rate, the outcome of the lawsuit could have lasting implications for the state’s future budgets and revenue projections.
At the state’s spring Consensus Revenue Estimating Conference, principals from the Treasury, House and Senate Fiscal Agencies, and the State Budget Office agreed on revenue projections for the next few years. Those projections assumed the income tax rate would bump back up to 4.25% next year.
“We always prepare our forecasts based on current law and Attorney General Nessel’s formal opinion actually carries the weight of law and so that was reflected in the revenue estimate,” State Treasurer Rachel Eubanks said in May following the conference.
The final numbers from that conference influenced lawmakers when they wrote the Fiscal Year 2024 budget set to take effect in October.
The Department of Treasury said it hadn’t been served in the lawsuit as of Thursday afternoon. It said it doesn’t comment on pending litigation.
