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Michigan income tax cut not permanent, court rules

tax documents
A temporary 2023 tax cut saved Michiganders a combined $714 million, according to estimates. (Shutterstock)
  • Automatic income tax cut triggered in 2023 is not permanent, Michigan Court of Appeals rules
  • Democrats argue the cut, triggered by high state revenues, was temporary. Republicans disagree
  • Appeal to Michigan Supreme Court is likely

An automatic income tax cut triggered last year by high state revenues was temporary, the Michigan’s Court of Appeals ruled Thursday, siding with Democratic officials and the state treasury department.

In a unanimous decision, a three-judge panel rejected arguments from Republican lawmakers and a free-market think tank, who had sued in an attempt to make the tax cut permanent and may appeal to the Michigan Supreme Court.

At issue is a 2015 road funding law approved by GOP majorities that requires Michigan to cut its income tax rate in any year when revenue growth significantly outpaced inflation. That happened in 2023, prompting the state to cut the income tax rate from 4.25% to 4.05% and saving taxpayers a collective $714 million. 


While plaintiffs in the lawsuit argue those cuts were meant to continue in perpetuity, the law “contains no language indicating a legislative intent to make the rate reduction … permanent,” the appeals court judges ruled. 

“There is no language…to suggest that, when the exception is triggered, the reduced rate calculated pursuant to the statutory formula becomes a new permanent default rate.”

The decision backs up a March 2023 legal opinion by Democratic Attorney General Dana Nessel, who determined the cut should be temporary because the law mandates a reduction in the “current” rate, which was set at 4.25%

The “statute provides temporary relief based on temporary circumstance,” Nessel wrote in her opinion, which a Michigan Court of Claims affirmed in December.

Michigan Treasurer Rachel Eubanks last week announced the personal income tax rate will go back up from 4.05% to 4.25% for the 2024 tax year because income revenues did not trigger another automatic reduction. 

The Mackinac Center for Public Policy, a free-market group that helped file that lawsuit, said Thursday they are likely to appeal to the Michigan Supreme Court.

Plaintiffs in the case include Sens. Ed McBroom of Vulcan and Dale Zorn of Ida, some individual taxpayers, the Association Builders and Contractors of Michigan and the National Federation of Independent Businesses. 

“The question in this case has always been what is the clearest reading of the statute,” Patrick Wright, vice president for legal affairs at the Mackinac Center, said in a statement. 

“We remain convinced that the best reading of the law requires a permanent tax cut.”

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