Case summary
In 2007, the Michigan State Legislature bundled an earlier series of income tax provisions into one law that set the state’s individual income tax rate and specified the conditions for raising and lowering it. In 2015, the law was amended to state that after January 1, 2023, the “current” tax rate would be reduced if the previous year’s budget surplus exceeded inflation.
In their January 2023 Budget Analysis, the state legislature’s Fiscal Agencies predicted that budget surpluses would meet the conditions to trigger a tax cut. The Senate Fiscal Agency concluded that this cut would lower the rate from 4.25% to 4.05%.
Faced with the possibility of a permanent reduction in the tax rate, Gov. Whitmer and Democratic state lawmakers attempted to back-spend nearly $700 million. After a failed attempt to spend the money on corporate welfare projects, they announced their plan to provide $180 “inflation relief checks” to each Michigan household. These bills lacked the support needed to take immediate effect, which was required to prevent the tax cut. Whitmer ended up cancelling the checks and accepting the rest of the legislature’s tax plan on March 1 — including the new 4.05% income tax rate.
Although Michigan authorities accepted that the tax cut would be permanent, Attorney General Nessel claimed that the reduction was only temporary. In a March 23 opinion, the attorney general stated that the phrase “current rate” did not change from year to year with the most updated tax rate, but rather meant “a fixed rate of 4.25%.” This would be an automatic reversion to the older, higher rate each year, an interpretation that is inconsistent with both the text of the law and the Legislature’s past practice.
The state treasurer accepted Nessel’s view of the law, announcing on March 30 that the tax rate would revert to its prior level at the end of 2023. This would allow the government to collect more than $700 million extra from the taxpayers per year, beginning in 2024.
The Mackinac Center Legal Foundation filed a lawsuit against Michigan State Treasurer Rachel Eubanks on August 24, demanding that the state follow the law and ensure the income tax reduction remains permanent, instead of taking an additional $700 million a year from Michigan residents next year.
The complaint was filed on behalf of 10 parties. Two Michigan lawmakers, Sen. Ed McBroom, R-Waucedah Township, and Rep. Dale Zorn, R-Onsted; two Michigan-based business associations, Associated Builders and Contractors of Michigan and the National Federation of Independent Business, Inc.; as well six Michigan residents and taxpayers: Rodney Davies, Kimberly Davies, Owen Pyle, William Lubaway, Barbara Carter and Ross Vander Klok.
On December 21, 2023, the Court of Claims denied the Mackinac Center Legal Foundation's motion for summary disposition.
On January 31, 2024, the Michigan Supreme Court announced that the Michigan Court of Appeals will decide the lawsuit by March 11.
On March 7, 2024 the Michigan Court of Appeals unanimously concluded that the statute was unambiguous and designed only to give temporary tax relief. The Mackinac Center and its clients appealed this decision to the Michigan Supreme Court on March 25th.
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