The Michigan Supreme Court on Friday cost taxpayers $700 million a year by rejecting a lawsuit challenging Democrats’ interpretation of a 2015 law that cut the state’s income tax rate.

The Friday order denied an appeal of a March 8, 2024 Court of Appeals judgement that deemed the tax cut temporary “because we are not persuaded that the questions presented should be reviewed by this Court,” justices wrote.

The 2015 law, approved by a Republican legislative majority and signed into law by Republican Gov. Rick Snyder, established an income tax rate reduction from 4.25% to 4.05% when state revenues exceed 1.425 times the rate of inflation, which occurred for the first time in 2022.

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The law cut taxes for 2023, but the rate returned to 4.25% for 2024 based on an opinion from Attorney General Dana Nessel that argued “the Legislature intended the relief to taxpayers to be only temporary.”

The Mackinac Center for Public Policy sued to challenge Nessel’s interpretation on behalf of the Associated Builders and Contractors of Michigan, National Federation of Independent Business, Republican lawmakers and six taxpayers, who argued the legislature’s intent for a permanent tax cut was clear in 2015. Reverting to the 4.25% income tax rate costs taxpayers about $700 million per year, according to the Mackinac Center.

“It’s deeply disappointing that the Michigan Supreme Court refused to even hear the case,” Vulcan Republican state Sen. Ed McBroom, a plaintiff in the lawsuit, said in a statement cited by Crain’s Detroit Business. “Gov. (Gretchen) Whitmer and others in the Legislature at the time knew exactly what it said when they railed against voting on it. Michigan residents are now reaping the price of unsustainable spending on other programs and poor investments across the state.”

Democrats who crafted the 2024 and 2025 budgets already factored in revenues from the tax reverting to 4.25%, while claiming the record-breaking $82.5 billion budget included no tax increases.

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“Taxpayers just lost $700 million a year without a single vote in the Legislature,” Patrick J. Wright, the Mackinac Center’s vice president for legal affairs, told Crain’s. “This case is a reminder that the Legislature must be extremely precise in order to avoid a misguided interpretation of the law by a future administration opposed to its original goals.”

The Supreme Court’s refusal to consider the case means a 3-0 ruling from an appeals court nearly six months ago remains.

A three judge appeals panel ruled unanimously on March 7 that “There is no language in (the 2015 law) indicating that the 4.25% rate permanently expires when the exception in Subsection (1)(c) is triggered for a particular tax year.”

The law “contains no language indicating a legislative intent to make the rate reduction under Subsection (1)(c) permanent,” the ruling read.

Republican leaders who crafted the 2015 law, as well as Gov. Rick Snyder, have all since issued statements that leave no doubt about the intent behind the law.

“The income tax trigger was intended to be a permanent reduction activated when state government had a large surplus,” Snyder said in late March. “Our taxpayers worked hard to earn those dollars and government should not keep them when there are not critical expenses to pay for. The attorney general’s opinion today is an unreasonable overreach of what was agreed upon. Michigan taxpayers deserve the surplus dollars now and into the future.”

“We made sure that, if the government coffers became full, the first people to see relief would be hardworking taxpayers. But if Gov. Whitmer and Michigan Democrats want to deny that relief and raise taxes on Michigan families, they should draft a bill and vote on it,” said Arlan Meekhof, who served as Senate Majority Leader in 2015.

Shane Hernandez, president of the ABC, told WHMI the Supreme Court’s decision on Friday is bad news for small businesses and contractors.

“To me it was very clear when the road deal was passed this was meant to be a permanent tax cut. In fact, some of the arguments on the House floor against the bill were that this was permanent and could be damaging to the state. So now here we have a court saying that’s not the case, it was just a temporary cut,” he said.

Hernandez pointed to statistics showing Michiganders are fleeing to states with lower taxes, suggesting the state missed an opportunity to counter that trend.

“We can look at examples around the country, whether it’s Florida or Tennessee, the states that are growing are the ones that don’t have an income tax,” he said. “That’s where people are moving.”

“When you have more money in your pocket, you have more opportunity to grow and more opportunity to put money back into the economy,” Hernandez said. “That’s shown clearly through those states that are growing in the country right now.”