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Michigan Supreme Court rules that East Lansing collected disguised tax

Extra wide exterior shot of state Supreme Court building.
Lester Graham
/
Michigan Public

East Lansing has lost a Michigan Supreme Court case that could cost the city millions in damages.

The case started in 2020, when lawyer and East Lansing resident James Heos sued the city in a class action lawsuit. His argument was that the 5% “franchise fee” that the Lansing Board of Water and Light (BWL) began including on customers’ bills in 2017 was actually a disguised tax.

On Monday, the Michigan Supreme Court agreed the fee was indeed an unlawful tax due to the fact that city residents were never able to approve it by a majority vote. They ruled 4-1 that Heos had standing to challenge the franchise fee in a lower court.

“The city is still entitled to a trial on damages, although, in this particular case, damages are essentially certain,” said the plaintiff’s co-counsel Andrew Abood. “Hopefully, we can reach an agreement on the damages with the city.”

Since the inception of the franchise fee in 2017, the BWL has collected about $1.4 million a year for the city. According to the court findings, the franchise fee “[did] not correspond with any costs the City incurs as a result of LBWL’s provision of electrical services.”

These funds were placed into the city’s general fund where they were able to be used for anything the city “deemed appropriate.” This included the city making supplemental pension payments.

A spokesperson for the City of East Lansing said the city was aware of the ruling, but did not have a comment at this time.

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