March 8, 2024 | This Week in Government: Appeal Likely For Income Tax Dispute

A unanimous Court of Appeals panel on Thursday sided with the state in its determination that the 2015 law triggering an income tax cut does so for one year only.

The plaintiffs in Associated Builders and Contractors of Michigan v. Eubanks (COA Docket No. 369314) quickly declared they are considering their legal options and that a Michigan Supreme Court appeal was likely. The plaintiffs, which include several Republican lawmakers, argued the income tax should have permanently settled at 4.05% after the formula dropped it from 4.25% for 2023.

In a published per curium opinion signed by Judge Michael Gadola, Judge Christopher Murray, and Judge Michael Kelly, the panel on Thursday affirmed the previous ruling of Court of Claims Judge Elizabeth Gleicher.

Gadola was formerly Gov. Rick Snyder’s legal counsel, though he was no longer counsel when Snyder signed the 2015 road funding law that included the income tax trigger. Gadola also is a former House Republican legal counsel. Murray was deputy legal counsel to former Gov. John Engler. Kelly was directly elected to the bench and has proven difficult to predict on the court.

Snyder himself had insisted the tax reduction was to be permanent.

Last year, an income tax reduction triggered by revenue growth was granted by Treasurer Rachael Eubanks, reducing the rate from 4.25% to 4.05%, though she said it would be for one year only. The tax rate reverted to 4.25% for 2024.

The ruling marks a big win for Gov. Gretchen Whitmer‘s administration, which had already assumed the tax rate would be 4.25% when crafting the 2024-25 budget proposal.

Republicans and business-friendly advocacy groups disagreed with the assessment that the 2015 road funding law trigger was meant to provide for temporary tax cuts and said that if the trigger was hit, the cut was designed to be permanent.

The panel, upon appeal, said that the associations and lawmakers were not entitled to relief because their arguments on how the statute should be interpreted were unpersuasive and failed to show that they had a clear legal right to perform a specific duty from the department.

“In sum, the statute contains no language indicating a legislative intent to make the rate reduction under Subsection (1)(c) permanent,” the court ruled. “The defendant’s interpretation would make each reduction permanent and allow compounding reductions that could ultimately result in no income tax. This would render nugatory the statutory language providing for an income tax.”

The Mackinac Center for Public Policy’s legal foundation is representing the plaintiffs. In a news release, the group said it is reviewing its legal options with its clients and that an appeal appeared likely.

“The question in this case has always been what is the clearest reading of the statute,” said Patrick Wright, vice president for legal affairs at the Mackinac Center, in a statement. “We remain convinced that the best reading of the law requires a permanent tax cut.”

The House and Senate appropriations panels approved a $11.4 million transfer for the higher education budget to increase funding for the Children Of Veterans And Officers Survivor Tuition Grant Program and the Tuition Incentive Program.

Of that funding, $6 million would be pulled from federal contingency authorization, and $5.4 million would be pulled from the state competitive scholarship.

The transfer will increase funding for the Children Of Veterans And Officers Survivor Tuition Grant Program by $400,000 and the Tuition Incentive Program, which provides tuition support for students who were eligible for Medicaid in high school, by $11 million.

The House Appropriations Committee approved the transfer 16-0, with all 12 Republicans on the committee abstaining from the vote. The Senate Appropriations Committee approved the transfer unanimously.

The House panel also reported two bills to expand how Promise Zone financial aid can be used and to change the requirements for Michigan Promise Zone Authority board membership.

Both SB 350 and SB 555 were reported along party lines, 16-11, with Rep. Bill Schuette (R-Midland) abstaining.

Republicans offered several amendments to  SB 350, which would have defined federal student loans and removed study abroad costs as a qualified education expense. The amendments failed.

Rep. Timmy Beson (R-Bay City) offered an amendment to SB 355, which would have provided the minority party with the opportunity to appoint members to the board. That amendment also failed.

Following the meeting, Beson and Rep. Andrew Fink (R-Hillsdale) expressed concern over Beson’s failed amendment, saying that it wasn’t about partisanship but about better representation.

“It’s not always going to be this way,” Beson said, referring to the current Democratic trifecta.

A Senate panel on Thursday reported bills to expand the Department of Environment, Great Lakes, and Energy rulemaking authority and to create the Michigan High-Speed Internet Office in the Department of Labor and Economic Opportunity.

The bills, SB 663 and SB 687 were reported to the floor by the Senate Energy and Environment Committee, which also heard testimony on SB 504, a bill to amend the Public Service Commission Act to provide that a long-term industrial load rate would not be subject to any securitization charges approved by the commission (see separate story).

SB 663 would allow EGLE, for the first time since 2006, to issue administrative rules related to water resources protection. Sponsored by Sen. Sue Shink (D-Northfield Township), the bill restores that authority.

Shink and EGLE, in previous testimony on the bill, said a 2004 law prohibited rule promulgation under that section after 2006, which she said is at odds with the fundamental purpose of EGLE (See Gongwer Michigan Report, Feb. 22, 2024).

The committee took no further testimony on the bill. Not wishing to speak, but in support of SB 663 was David Lossing of the Huron River Watershed Council.

Sponsored by Sen. Sean McCann (D-Kalamazoo), SB 687 would create the High-Speed Internet Office, requiring the LEO director to appoint a director of the office and prescribe duties of the office, like identifying best practices and resources to support broadband and digital infrastructure – all with the aim of creating access to internet with speeds of at least 100 megabits per second downstream and 20 megabits per second upstream.

McCann, the committee’s chair, said testimony had been taken previously and that members had several amendments to the bill, all of which were adopted before SB 687 was reported to the floor.

Sen. Roger Hauck (R-Mount Pleasant) proposed a five-year sunset for the bill and a title change. Both were adopted.

McCann proposed two as well: one to change references of “recommendations” to “analysis” and to set aside one-third of money from federal Broadband Equity Access and Development funds as grants for K-12 and higher education institutions.

Sen. Dan Lauwers (R-Brockway) questioned if the office had planned to give those grants under its charge, as laid out in the bill. McCann said he didn’t know if the office had specific plans to dedicate those funds; he just wanted to emphasize that they could if they had the ability.

Sen. John Damoose (R-Harbor Springs) wondered where McCann got the proposed one-third allotment and why it was for educational institutions but not general residences.

McCann said he would hope LEO would at another time give some more explanation of why they came up with the one-third calculation. But at this time, McCann said the idea was to create a ceiling of up to one-third and that it wouldn’t be required.

Lauwers asked if there was a test to gauge the need, noting that in his rural district, some schools have fiber and are the envy of the state in terms of internet connectivity.

McCann said that the concept was partially based on initiatives the schools might have with costs that go beyond the scope of laying broadband infrastructure. He cited those that might attempt to expand digital literacy programs and the ability for people to connect to the internet through those programs. The amendment was adopted 9-5 along party lines.

The committee reported SB 687 on a 12-2 vote, however.

To properly support the transition to electric vehicles, Michigan needs to support improved access to EV chargers, supporters of HB 4708 told the House Tax Policy Committee Wednesday.

“We want to make sure if you’re a strip mall if you’re a coffee shop if you are a homeowner who wants to install these at your home, you’re not going to be hit on the backend with increased tax liability,” Rep. Alabas Farhat (D-Dearborn) told the committee. “This would make it easier.”

The bill, sponsored by Farhat, would amend the General Property Tax Act to exempt qualified charging stations from property taxes that are levied after Dec. 31, 2023. The exemption would apply to commercial, residential, and industrial taxpayers, though discussions are ongoing on whether the exemption would be for personal or real property taxes.

Kurt Berryman, representing the Michigan Automobile Dealers Association, gave testimony on how the legislation would affect car dealerships.

“When the auto manufacturers made the shift, EVs became a mandate for us,” he said.

Most dealerships are spending $500,000 to install EV charging stations, Berryman said. If there were to be tax incentives, instead of installing the three charging stations mandated by the automaker, dealerships might install six, making them more accessible.

“Tax policy does change behavior,” he said. “If the state has a goal to encourage EVs, and certainly we’ve heard from the governor a number of times, to expand the number of charging stations, EVs aren’t going to run without them being charged; I think it’s a nice step for the state to come in and say if you put these in, you’re not going to be punished with either real or personal property tax increase on this.”

Farhat said that he and other stakeholders have been working with the Department of Treasury on the legislation and that the department is generally in favor of the bill as long as the School Aid Fund is held harmless.

EV charging stations typically cost between $60,000 and $200,000, depending on the type of charger. The incentive would cost the state about $1 million, according to an estimate by the House Fiscal Agency.

Rep. Julie Brixie (D-Okemos) said that although she was in favor of EVs, she had concerns about how tax incentives would affect local governments, as real and personal property taxes affect their budget more.

“My concern is that Treasury might not be that broken up about it,” she said. “Personal property and real property are way more impactful to local government than state government.”

Farhat said the goal was to increase access to EV charging to encourage adoption of electric vehicles.

“We’re just encouraging across-the-board implementation,” he said.

Brixie said that it was something she felt the state had to move on carefully.

“The ramifications of our transition to EV vehicles is going to be felt for a long time,” she said. “I’m not convinced that that’s something that needs to be a tax break.”

Rep. Mark Tisdel (R-Rochester Hills) asked if revenues and profits for EVs weren’t going to be enough to cover the costs of the chargers as a capital improvement.

“The proof is in the pudding,” Barryman said. “Right now, my members are getting a bit of a backlog of EVs sitting on the dealerships … and that’s a conversation I’d like to extend with the tax committee about other ways that we can have tax incentives to improve that.”

Tisdel acknowledged the difficult position dealerships were in, given what appears to be a low demand for EVs right now.

“I don’t envy the position that the dealers are put in,” Tisdel said. “I see you’re between a rock and a hard place.”

Rep. Greg VanWoerkom (R-Norton Shores) asked why people wouldn’t use the federal incentive for EV charging stations instead. He also asked about updates to the EV chargers.

“Short story: There were winners and losers to who qualifies for the EV subsidies. We were a loser,” Barryman said.

Farhat said a second draft of the bill would address technology changes to different chargers.

Chase Attanasio, representing Clean Fuels Michigan, also testified in support of the bill.

“Industry and state partners are working diligently to expand Michigan’s EV charging infrastructure,” Attanasio said. “This bill offers an opportunity for Michigan to continue to support property owners who are interested in contributing to the expansion of Michigan’s EV charging network.”

Several organizations submitted cards in support of the bill, including Lucid Motors, Meijer, the Michigan Retailers Association, MICHauto, the Michigan Energy Innovation Business Council, and the Michigan League of Conservation Voters.

The Michigan Association of School Boards, the Michigan Municipal League, Oakland Schools, and the Michigan Townships Association submitted cards in opposition.

No further action was taken on the legislation on Wednesday.

Legislation that would establish a sales and use tax exemption for enterprise data centers and set a sunset on the breaks would help Michigan become a more attractive location for companies to locate large data centers, a Senate panel was told Wednesday.

Members of the Senate Finance, Insurance, and Consumer Protection Committee heard supportive testimony on a four-bill package that would put the tax exemptions in place through Dec. 31, 2050, for facilities that meet requirements for spending and job creation.

The sunset for sales and use tax exemption on qualified entities’ sale, storage, use, or consumption of data center equipment would also be extended under HB 4905, HB 4096, SB 237, and SB 238.

Bill sponsors said at least 29 other states have similar exemptions in place for enterprise data centers. States that do not have them in place are often bypassed for locating what can be multibillion-dollar facilities, they said.

Rep. Joey Andrews (D-Saint Joseph), sponsor of HB 4906, said data center projects are typically multibillion-dollar projects, which could be a boon to communities like those in his district.

“It’s a huge windfall,” Andrews said. “This is, I think, an opportunity, not just for our state, but for a lot of communities in our state that are trying to figure out what’s next for them. … This is an open door to the knowledge economy.”

Andrews said such projects can be “a new lease on life” for communities like Benton Harbor in his district if a company that is weighing locating a data center in the area chooses to do so.

“It’s a huge opportunity for us right now,” Andrews said, adding it could double the local school district budget.

The Senate bill sponsors agreed.

Sen. Kevin Hertel (D-Saint Clair Shores) said Michigan has exemptions in place for co-located data centers, which tend to be smaller facilities than enterprise data centers used by a single company.

“This just takes us into a new growing industry, which will grow exponentially in the coming years because of the advent of AI and the amount of data that’s needed to make these very fast computations, time and time again, across all of our communities and in different businesses,” Hertel said.

Under the bills, the ongoing jobs created by the location of data centers would be required to have wages at or above 120% of the county average wage for the entirely of the tax exemption, Hertel said.

Sen. Roger Victory (R-Georgetown Township) said that with the passage of the bills, Michigan could become an attractive state for data centers as more are planned and constructed over the next decade or so.

“This is an opportunity for some of our rural communities that are not always at the plate when we talk about economic development,” Victory said. “This can flip the script.”

Former U.S. Rep. Barbara Comstock of Virginia, representing NetChoice, told the committee her state became the top location in the world for data centers after it enacted similar incentives.

She said after similar legislation was passed in Virginia, data centers, including in the area that she represented, saw tax revenues grow and drive further economic development.

“While Michigan has considered but not enacted the sales tax exemption, your neighboring states have been … realizing those new investments,” Comstock said.

She pointed to billions in spending in Illinois, Ohio, and Wisconsin by companies on large data centers.

Sen. Rosemary Bayer (D-Keego Harbor) asked what is created other than the building, saying the centers are essentially factories.

Comstock said the location of a data center tends to spur further growth and spending in education.

She said one of the companies that has a data center in northern Virginia has put spending into programs in local schools and training for jobs.

Bayer said the money can have an effect on a community, but the attraction of about 100 jobs does not have a huge effect on a community.