A reduction to Michigan’s income tax last year was only temporary, according to a ruling from the Michigan Court of Appeals released Thursday.
The question stemmed from a Republican-passed law that reduced the state income tax when government revenue growth outpaced the rate of inflation. Due to higher revenues in the 2022 fiscal year, the cut was triggered, lowering Michigan’s tax rate from 4.25% to 4.05%.
But it was unclear if the language of the legislation made that cut
The Court of Appeals settled the debate Thursday, affirming an earlier decision from the Court of Claims that the cut and any future reductions stemming from the law would be temporary.
The ruling still allows for repeating reductions should the prescribed economic conditions be met consecutively — but by default, the cut would not remain for the next tax year.
Several Republican lawmakers and conservative organizations argued that the cut was intended to be permanent when the legislation was passed in 2015. But that argument was undercut by the three-judge panel that delivered the unanimous ruling.
“In sum, the statute contains no language indicating a legislative intent to make the rate reduction under [the 2015 legislation] permanent,” the ruling read. The court also wrote that if the cut were considered permanent, compounding reductions could result in the elimination of the income tax entirely.
The Department of Treasury issued a statement after the ruling that the department is “committed to serving taxpayers with integrity when administering state tax laws.”
“Today’s unanimous opinion by the Michigan Court of Appeals has reaffirmed the individual income tax rate change was temporary,” the statement read. “We will administer the law as the Courts have ruled and continue to ensure all Michiganders are provided fair and equitable treatment.”
In fiscal year 2022, the state government collected about $13.1 billion through the personal income tax. This represents 32.6% of all state tax revenues and about 15.5% of the fiscal year 2023 budget, which totaled $85.6 billion.
The ruling still allows for future temporary reductions should the economic conditions outlined in the legislation be met. A change to make permanent reductions to the state’s income tax or other changes could of course be considered by lawmakers — but the Democratic-controlled state government is unlikely to support such measures.
In 2023, Gov. Gretchen Whitmer attempted to circumvent the income tax reduction by proposing $180 rebate checks for each taxpayer. The $800 million program would have come from the state’s general fund, lowering 2022 financial figures and pushing off the required tax cut.
But the move fell flat in the Senate where Republicans withheld their support to ensure that the checks wouldn’t go out immediately, causing the program to not be implemented.