LANSING, Mich. — Michigan Attorney General Dana Nessel issued a legal opinion Tuesday afternoon that clarifies a 2015 law that would trigger the state's income tax rate to drop if certain fiscal parameters are met.
A 2015 law allowed Michigan's income tax rate to drop if the increase to our state's General Fund from one year to the next was greater than the rate of inflation during that same period.
The law went into effect at the beginning of 2023— meaning, this could be the first year in which a lower income tax rate is automatically triggered.
It would take the Michigan income tax rate from 4.25% to 4.05%.
If you were making $100,000 a year, this would reduce your income tax liability by $200.
AG Nessel's opinion Tuesday clarified how the 2015 law is to be implemented, after a request from State Treasurer Rachel Eubanks.
"It is apparent that the Legislature intended any income tax reduction under subsection (1)(c) to be for that tax year only," Nessel writes in the 5 page opinion.
Under her opinion, which is legally binding, the income tax rate will drop for just the year in which the parameters are met.
For example, if the amount going into Michigan's General Fund from fiscal years 2023 to 2024 is greater than inflation for that period, then the income tax rate drop is triggered for that year only.
The next year, the rate goes right back up to 4.25% unless they meet that requirement.
"The conclusion that any reduction is temporary is supported not only by the plain language of the statute, but also by the nature of the triggering event itself. In particular, the triggering event is based on temporary, impermanent, circumstances that change, and are reviewed, every year. 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," she writes.
"But because that situation is only temporary, it makes sense that, rather than provide a permanent tax reduction based on the (perhaps unusual) economic circumstances of a single fiscal year, the Legislature intended the relief to taxpayers to be only temporary as well. Simply put, the statute provides temporary relief based on temporary circumstances."
REACTIONS TO THE OPINION
Brian Calley, the state's former Lieutenant Governor and current Small Business Association of Michigan President & CEO Brian Calley issued the following statement in response to Nessel's opinion Tuesday:
“It is disappointing the politics that state government will play to raise taxes on individuals and small businesses. No one ever suggested that the income tax rate decrease due to taxpayers this year was temporary until the decrease was actually triggered.
“Those who drafted the 2015 tax cut provision agree, as does the legislative analysis from the original passage of the legislation, that reductions in the income tax rate are permanent. As recently as January 2023, the non-partisan fiscal agencies of both the House and the Senate, along with the Department of Treasury, published consensus revenue estimates that clearly indicated that the tax cut continued in future years. It was not until partisan politicians got involved that attempts were made to undermine this important tax relief.
“The Governor and Treasury should ignore this partisan opinion.”
Rep. Matt Hall, House Republican Leader, issued the following statement in response:
“Since the beginning Gov. Whitmer has tried every trick in the book to undermine this income tax cut. After Republicans stopped the governor’s attempt to block the tax cut with accounting shell games, she and Attorney General Nessel are resorting to fringe legal theories to keep long-lasting relief out of people’s pockets.
Michigan law states that the current tax rate will be reduced, and the language, history, and legislative intent of the law all make clear that the tax cut should be permanent. Playing word games with the law doesn’t change the law. Michigan taxpayers deserve lasting, real relief, not a temporary money mirage brought on by Democrats’ partisan tricks.”
