Michigan Appeals Court says income tax cut was for 1 year

LANSING — The personal income tax reduction of 2023 was intended to last for one year only, the Michigan Court of Appeals ruled Thursday, upholding the interpretation of Gov. Gretchen Whitmer’s administration.

The unanimous ruling by a three-judge panel is a blow to Republican lawmakers, some business groups and the Mackinac Center for Policy, who all said the reduction in the personal income tax rate to 4.05% from 4.25% should be a permanent one. They sued last August.

“The statute contains no language indicating a legislative intent to make the rate reduction permanent,” the court said. Interpreting the law to make tax reductions permanent each time there is a spike in revenue, could, over time, “ultimately result in no income tax,” the decision said.

A 2015 road funding law, signed by former Republican Gov. Rick Snyder when the GOP also controlled the state Legislature, called for a rollback in the personal income tax rate in the event state revenues increased beyond a certain level, when measured against inflation. That happened in 2022 amid a boom in revenues spurred by federal stimulus money, despite relatively high inflation that year.

The Whitmer administration, backed by an opinion from Attorney General Dana Nessel, who, like Whitmer, is a Democrat, interpreted the law to say the income tax rollback would apply to the 2023 tax year only. State Treasurer Rachael Eubanks has already announced the rate has returned to 4.25% for 2024.

The Associated Builders and Contractors of

Michigan, the National Federation of Independent Business of Michigan and others said the tax cut should be permanent. They earlier lost in the Michigan Court of Claims and that decision was upheld Thursday by the Michigan Court of Appeals.

A court ruling the other way would put a $700 million annual hole in the state budget, officials said.

An appeal to the Michigan Supreme Court is possible.

The panel that handed down Thursday’s ruling consisted of Judges Michael Gadola, Christopher Murray and Michael Kelly. Michigan judges run on a nonpartisan ballot, but both Gadola and Murray were first appointed by Republican governors.