An expected drop in the state income tax rate would be temporary, according to a formal opinion released Tuesday by Michigan Attorney General Dana Nessel.
That controversial determination is the result of a request from Michigan Treasurer Rachel Eubanks. She asked because projections suggest a reduction in the state income tax rate is about to be triggered under a 2015 law.
That would be due to a surge in tax revenue combined with federal COVID assistance dollars. The question is what happens in the future when that cash surplus disappears.
“It’s a big change that impacts millions of people, so it’s absolutely critical that we get it right,” Eubanks told Michigan Public Radio.
Nessel’s official determination is that if the revenue surge fades “… the Legislature intended the relief to taxpayers to be only temporary as well. Simply put, the statute provides temporary relief based on temporary circumstances.”
That would send the state’s income tax back to its current rate of 4.25%.
The opinion’s release comes as the state is preparing to release its annual financial report, which is widely expected to show a windfall well above inflation. Reports from legislative budget agencies also predict a higher-than-inflation revenue boost based largely on an infusion of one-time federal funds.
The attorney general’s opinion did not sit well with anti-tax groups and many Republicans. They include many ex-lawmakers as well as former Governor Rick Snyder, who signed the 2015 law after it was sent to him by a GOP-controlled Legislature. He called Nessel’s opinion “an unreasonable overreach of what was agreed upon. Michigan taxpayers deserve the surplus dollars now and into the future.”
A legal challenge to the opinion appears very likely. An attorney general’s opinion is legally binding unless overturned by a court or overridden by a new law.