Michigan Court of Appeals to decide income tax rate question

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(The Center Square) – The Michigan Court of Appeals will decide the Mackinac Center for Public Policy’s lawsuit challenging an income tax rate increase by March 11.

Any appeal to that decision would be due to the Michigan Supreme Court by March 25.

The lawsuit challenges the Michigan Department of Treasury’s decision to raise the personal income tax rate back to 4.25% in 2024. The rate was lowered to 4.05% last year triggered by a 2015 law.

The trigger automatically lowers taxes when state revenue outpaces inflation by a set amount but the state of Michigan interpreted the tax cut as effective for one year, not permanently.

The decision could return $714 million to taxpayers or the government.

The Mackinac Center represents Associated Builders and Contractors of Michigan, the National Federation of Independent Business, Sen. Ed McBroom, Rep. Dale Zorn and six taxpayers from across the state.

“This announcement from the Michigan Supreme Court is a significant step toward clarity for Michigan’s 4.9 million taxpayers,” Mackinac Center Vice President for Legal Affairs Patrick J. Wright said in a statement. “This illegal tax hike costs taxpayers an additional $714 million a year. The Legislature meant to give permanent tax relief when the state’s revenues got extremely high. We hope the courts will agree and recognize the permanence of any tax cuts under this statute.”

In March, Nessel issued an opinion saying the income tax reduction would only apply this year. Nessel wrote the triggering event is based on temporary circumstances that are reviewed annually.

“Essentially, the Legislature has determined that if a situation exists where a percentage increase in state revenue in the immediately preceding fiscal year is greater than the rate of inflation for that same year and the inflation rate is positive, then the State can afford to provide relief to taxpayers,” Nessel wrote.

She summarized: “Simply put, the statute provides temporary relief based on temporary circumstances.”

However, the nonpartisan House Fiscal Agency’s 2015 bill analysis said the reductions would “continue indefinitely on an annual basis.”

The Mackinac Center filed a bypass motion to the Michigan Supreme Court last week, along with a brief appealing the Court of Claims’ Dec. 21 decision.

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