Michigan judge upholds one-year income tax cut, appeal planned

Lansing — A judge upheld this week decisions from top Michigan officials that a drop in the state's personal income tax from 4.25% to 4.05% for 2023 will last for one year and isn't guaranteed to stay in place going forward.

However, the plaintiffs in the lawsuit, including Republican legislators and business associations, say they will file an appeal of the ruling, which potentially impacts about $714 million in tax money annually in the future.

Michigan Court of Claims Judge Elizabeth Gleicher issued her opinion Thursday, agreeing with determinations previously made by Attorney General Dana Nessel and Rachael Eubanks, the state's treasurer.

The dispute focused on a 2015 law that required the state to decrease the income tax rate if tax revenue increased at a speed that exceeded inflation. The law provided a formula to determine how much of a decrease should occur based on revenue.

Nessel, a Democrat, issued an opinion in March, finding that the tax cuts prescribed by the law should last for one year and the formula should be used again based on the original rate of 4.25%.

"Simply put," Nessel said in a five-page opinion, "the statute provides temporary relief based on temporary circumstances."

Also, in March, Eubanks announced Michigan's personal income tax rate would drop from 4.25% to 4.05% for 2023 because state revenues outpaced inflation.

Gleicher, an appointee of former Gov. Jennifer Granholm, a Democrat, said Nessel's analysis of the 2015 law was persuasive. The triggering condition is based on economic circumstances that change each year, Gleicher added.

"Logically, it would make little sense to provide a permanent tax cut based on economic circumstances in one calendar year," Gleicher wrote. "The Legislature did not indicate in the language of MCL 206.51 that it intended a continuous reduction in the income tax."

The judge added that reductions, under the plaintiff's interpretation of the law, could eventually lead to Michigan having no income tax. But she said there was "no indication" in the language of the policy "that the Legislature sanctioned" that idea.

The Associated Builders and Contractors of Michigan, the National Federation of Independent Business and two lawmakers, state Sen. Ed McBroom, R-Vulcan, and state Rep. Dale Zorn, R-Ida, were among the plaintiffs in the legal challenge.

In response to the opinion, McBroom, who was in the Legislature when the law was voted on, said when it passed, everyone recognized the "potential that it could lead to a tax rate of zero, but only if times were so good that we didn’t need to collect taxes anymore."

"This decision is very disappointing, but it follows the usual trend of the current administration to protect its revenue and take more taxes from people, even when the law was so clearly written to reduce that burden on taxpayers," McBroom added.

A Thursday statement from the nonprofit Mackinac Center for Public Policy said an appeal "will be filed soon."

cmauger@detroitnews.com

Staff Writer Beth LeBlanc contributed.