Title: Butcher v. Dep't of Treasury
Citation: 389 N.W.2d 412, 425 Mich. 262
Docket Number: 75282
State: Michigan
Issuer: Michigan Supreme Court
Date: June 27, 1986

Decided June 27, 1986.
Robert E. Butcher for the plaintiffs and the class.
Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Richard R. Roesch and Russell E. Prins, Assistant Attorneys General, for the defendants.
BRICKLEY, J.
The question in this case is whether a 1982 amendment of § 520 of the Income Tax Act, MCL 206.1 et seq.; MSA 7.557(101) et seq., providing that the already existing local property tax credit shall be reduced by ten percent for each thousand dollars of household income in excess of $65,000, is violative of Const 1963, art 9, § 7, which prohibits an income tax graduated as to rate or base. We hold that, because the property tax credit is payable to the property taxpayer irrespective of state income tax liability, an income-graduated reduction in that credit does not conflict with the constitutional prohibition against a graduated income tax. We therefore affirm the decision of the Court of Appeals.
I
Section 520 of the Income Tax Act allows a credit for property taxes paid on a homestead. The amount of the credit is equal to sixty percent of the amount by which the taxpayers' property tax *265 exceeds 3.5 percent of their total household income for any given tax year.
In 1982, the Legislature enacted 1982 PA 269, which added the following section to MCL 206.520; MSA 7.557(1520):
Plaintiffs are husband and wife whose combined *266 household income exceeded $65,000. They filed suit in Wayne Circuit Court on April 19, 1983, seeking: (1) certification of the case as a class action; (2) a declaration that 1982 PA 269 was unconstitutional; (3) an injunction preventing the state from enforcing the property tax credit reduction statute; (4) accounting and repayment of all sums collected pursuant to the unconstitutional statute; (5) a statement informing potential class members of their right to a refund in future income tax forms; and (6) reasonable attorney fees.
Both parties moved for summary judgment. In an opinion dated August 24, 1983, Wayne Circuit Judge Thomas J. Brennan granted plaintiffs' motion, holding, inter alia:
An order declaring the statute unconstitutional was entered on October 7, 1983; on the same day, the suit was certified as a class action.
The order included within the class all persons
The Court of Appeals granted both immediate consideration and a stay of proceedings pending its decision. In a published per curiam opinion, it reversed the trial court's grant of summary judgment and upheld the constitutionality of the statute. 141 Mich App 116; 366 NW2d 15 (1984). Judge VINCENT J. BRENNAN dissented, expressing his agreement with the analysis of the trial judge. This Court granted leave to appeal on June 26, 1985, 422 Mich 937.
II
Const 1963, art 9, § 7 provides:
This section, adopted as part of the Michigan Constitution of 1963, was the subject of a good deal of debate during the Constitutional Convention; the official comment of the convention states:
Plaintiffs argue that the property tax credit reduction scheme contained in MCL 206.520(8); MSA 7.557(1520)(8) violates Const 1963, art 9, § 7 because it has the indirect effect of imposing a greater tax liability on persons with annual household income in excess of $65,000. Because the result of a reduction of the property tax credit is to decrease the amount of a refund or to increase the liability, depending upon other credits, reductions, and exemptions, plaintiffs contend that the statute indirectly imposes an income tax graduated as to rate because the higher the income, the less property tax credit received.
Defendants counter by arguing that plaintiffs are confusing two unrelated concepts, namely, income tax liability and property tax benefits. They are unrelated both because they deal with two different types of taxes, and because the liability for taxes or entitlement to a property tax credit are completely independent of each other. Reduced to its simplest terms, defendants' argument is that, since the property tax credit scheme is not a tax, the reduction of that credit, regardless of whether the reduction formula is based on income, cannot be designated as a tax either, and therefore cannot violate art 9, § 7.
III
Since the adoption of the 1963 Constitution, the appellate courts of this state have had only two occasions to resolve issues relating to art 9, § 7. Kuhn v Dep't of Treasury, 15 Mich App 364; 166 *269 NW2d 697 (1968), aff'd as modified 384 Mich 378; 183 NW2d 796 (1971), was the first case to challenge any provisions of the Income Tax Act. Two of the challenges involved Const 1963, art 9, § 7.
The plaintiffs in Kuhn alleged that both the allowance of the $1200 per dependent personal exemption and the credits allowed for property and income tax violated art 9, § 7. The trial court had granted summary judgment for the defendants, and the Court of Appeals affirmed the constitutionality of the act in all respects. As to the plaintiffs' challenge to the $1200 exemption per dependent, Justice LEVIN, writing for the Court, stated:
[15 Mich App 369-371.]
The Court disposed of the plaintiffs' allegations that the property tax credit and income tax liability credit also violated the anti-graduated income tax provision in one paragraph:
This Court granted leave to appeal in Kuhn, and affirmed the decision of the Court of Appeals on the issue pertinent to the instant case. This Court adopted the analysis of the Court of Appeals:
*272 The only other case involving an art 9, § 7 challenge is Rosenbaum v Dep't of Treasury, 77 Mich App 332; 258 NW2d 216 (1977), lv den 402 Mich 826 (1977). In that case, the plaintiffs sought to have the property tax credit and the sales tax credit provisions declared unconstitutional as violative of Const 1963, art 9, § 7. The trial court had granted the defendant's motion for summary judgment, and the Court of Appeals affirmed.
The plaintiffs argued that the formula to be applied in determining eligibility for the property tax credit had the effect of creating a graduated tax rate. In other words, their argument was that the statutory provision allowing for a property tax credit of that amount by which the property tax exceeds 3.5 percent of the plaintiff's total household income operates to impose a higher tax rate upon those with higher income.
The Court of Appeals rejected that contention, noting that "[p]laintiffs are correct only if it is assumed that every taxpayer's property tax liability is the same. The actual property tax credit which results from application of the statute is a result of two independent variables. Once having computed the credit it is allowed against tax liability without regard to the amount of a taxpayer's income." 77 Mich App 334. (Emphasis added.)
The Court reasoned that "[m]anipulation of the variables can yield results which do or do not appear to create a graduated rate depending on the assumptions used. We could by arbitrary manipulation make the credits vary only with changes in household income as the plaintiffs have done in their brief, but that clearly is not the necessary result of the statute." Id. at 335. The Court of Appeals looked to this Court's opinion in Kuhn for guidance, and analogized the property tax credit provisions to the income tax credit *273 provision at issue in that case. Because the income tax credit provision was upheld against an art 9, § 7 challenge in Kuhn, despite its obvious relation to a taxpayer's income, the Court concluded that the property tax credit provision was also constitutional.
Because "[p]laintiffs here have failed to overcome the presumption of constitutional validity inherent in this statutory provision," id. at 337, the Court of Appeals affirmed the trial court's grant of summary judgment in favor of the Department of Treasury. This Court denied leave to appeal.
IV
It is clear that in Kuhn, by closely examining the credits, exclusions, and exemptions there challenged, we at least implied that a constitutional violation can occur by the use of income criteria for determining their amounts. The reduction of a credit, as in the case before us, would be no exception to such an implication, if, as appears at first blush here, it was determined that such a reduction was influenced by income bracketing, and such factors affected the income tax liability.
*274 We believe, however, that the property tax credit reduction in question here is of a different nature than the credits examined in Kuhn and Rosenbaum, and that the Court of Appeals has perceptively and clearly located the distinguishing feature:
Unlike the federal government, the state is not exempting certain property taxes from the base of the tax; rather, it is refunding them. The property taxpayer receives the rebate whether or not there is any income tax liability.
The plaintiffs themselves state that the property tax credit "cannot be a credit against income tax liability, because the beneficiary is entitled to cash payment where the credit exceeds his liability," and, "the Court must keep in mind in connection with this suit that such property tax credit represents an obligation of the State of Michigan to property taxpayers, whether or not they have any income tax obligation to the state."
The plaintiffs, despite these admissions, continue to argue that the property tax credit does affect the income tax liability of the taxpayer and, as such, the income graduation in § 520(8) is violative of art 9, § 7. Plaintiffs only briefly and without citation of supporting authority dismiss the analysis of the Court of Appeals by stating, "It cannot be a rebate, nor a reduction of property taxes, because property taxes are not paid to the state." In several places in their brief, the plaintiffs, again without rationale or citation to authority, cite the uniformity and ad valorem requirements of Const 1963, art 9, § 3[2] and state, "By extension, any *276 reduction or rebate of property taxes would also have to be on an ad valorem basis and to all property taxpayers."[3]
We do not accept the implication of plaintiffs' argument that, if the property tax credit is infirm under other provisions of the constitution, it then necessarily is converted to a provision that affects income tax liability.
The property tax "credit," which § 520(8) reduces for some taxpayers on the basis of their income, is in effect a property tax rebate that employs the income tax as a vehicle for its reconciliation. Therefore, art 9, § 7, which is concerned only with income taxes, is inapplicable to what is clearly a property tax rebate. Its validity as a property tax rebate is not before us in this case.
V
Plaintiffs' due process and equal protection arguments were not raised in the Court of Appeals, and we therefore decline to consider them.
The decision of the Court of Appeals is affirmed.
*277 WILLIAMS, C.J., and LEVIN, CAVANAGH, BOYLE, and RILEY, JJ., concurred with BRICKLEY, J.
ARCHER, J., took no part in the decision of this case.
[1]  On December 19, 1985, the Legislature, by 1985 PA 187, amended this section in order to keep the property tax credit reduction scheme in effect. Section 8 now reads:

For tax years commencing after December 31, 1984, a credit under subsection (1) or (2) shall be reduced by 10% for each claimant whose household income exceeds $73,650.00, and by an additional 10% for each increment of $1,000.00 of household income in excess of $73,650.00.
[2]  Const 1963, art 9, § 3 provides:

The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law. The legislature shall provide for the determination of true cash value of such property; the proportion of true cash value at which such property shall be uniformly assessed, which shall not, after January 1, 1966, exceed 50 percent; and for a system of equalization of assessments. The legislature may provide for alternative means of taxation of designated real and tangible personal property in lieu of general ad valorem taxation. Every tax other than the general ad valorem property tax shall be uniform upon the class or classes on which it operates.
[3]  The plaintiffs have not asked us to find that § 520(8) or the property tax credit itself is violative of the property tax provisions of the Michigan Constitution; nor, except for the brief assertions quoted above, have the parties argued that issue. Plaintiffs' brief begins, "The sole legal issue presented is whether 1982 PA 269(8) [sic] violates Const 1963, art IX, § 7." The plaintiffs also assert that "[t]he validity of the property tax credit, which Plaintiffs assume for purposes of this suit, is not affected in any manner by the provisions of Section 7 of Article IX, because the state is giving something, not taking something away."