Court Opinion

ID: 9686631
Source: CourtListenerOpinion
Date Created: 2023-08-24 15:59:29.762689+00
Date Added: 2024-06-11T18:18:21.005656
License: Public Domain

V. J. Brennan, J.
(dissenting). I respectfully dissent.
The plaintiffs’ position is that 1982 PA 269 contravenes Const 1963, art 9, § 7, in that it indirectly establishes a graduated income tax on that level of annual income between $65,000 and $75,-000.
MCL 206.520(8); MSA 7.557(1520X8) provides in pertinent part:
"(8) For tax years commencing after December 31, 1981, a credit under this section shall be reduced by 10% for each claimant whose household income exceeds $65,000.00, as adjusted pursuant to this section, and by an additional 10% for each increment of $1,000.00 of household income in excess of $65,000.00 or the adjusted base level.”
MCL 206.522(8); MSA 7.557(1522X8) states that for any taxable period after January 1, 1976, the total credit allowed "shall not exceed $1,200.00 per year”. The actual calculation of the credit is not at issue here. It is the "credit reduction” formula of § 520(8) that is challenged. Plaintiffs claim, and *124the lower court held, that these provisions effectively impose a graduated income tax upon incomes between $65,000 and $75,000. This position is based on language from Kuhn v Dep’t of Treasury, 384 Mich 378; 183 NW2d 796 (1971), and Rosenbaum v Dep’t of Treasury, 77 Mich App 332; 258 NW2d 216 (1977), lv den 402 Mich 826 (1977).
In Kuhn, the plaintiffs attacked the act’s (the Michigan Income Tax Act of 1967, MCL 206.1 et seq.; MSA 7.557(101) et seq.) classification of taxpayers into three categories and its sliding scale of credits for city income and property taxes. In particular, plaintiffs claimed that the sliding scale of credits violated Const 1963, art 9, §7. The Supreme Court held as follows:
"As the Court of Appeals said, that prohibition applies only to different rates of tax on different segments of taxable income of the person being taxed. It does not prohibit the exclusion or exemption from the definition of taxable income of a portion of the taxed person’s receipts. Undoubtedly what the drafters and adopters of that provision in the 1963 Michigan Constitution had in mind was the graduated scheme of the federal income tax in which rates increase as taxable income does, and that power they wished to deny to the state. Neither the designation of three types of taxpayers with different applicable rates to each, nor the difference in exemptions or exclusions causes this act to run amiss of that wish and does not violate art 9, § 7. The rates of tax imposed by the act are uniformly applicable to all taxable income of every taxpayer in each class. As the Court of Appeals said:
" 'The credits for property and income taxes are allowed against the tax liability of all taxpayers without regard to their income. The limitations upon the amounts of credits that may be claimed by a taxpayer are not based upon the taxpayer’s income; the effect is not to impose a tax violative of the constitutional prohibition against a tax graduated as to rate or base.’ *125(Kuhn v Dep’t of Treasury, [15 Mich App 364, 371 (1968)]”. (Emphasis added.) 384 Mich 388-389.
The Rosenbaum Court was confronted with a similar challenge that the credit computation, which provided for a property tax credit equal to 60% of the amount that property taxes incurred exceeded 3.5% of the taxpayer’s "household income”, was unconstitutional because it acted to give lower credits to otherwise qualified taxpayers solely on the basis that their incomes were higher. This Court first noted:
"It is the 3.5% of household income limitation which the plaintiffs contend has the impermissible effect of a graduated rate. Plaintiffs 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. Plaintiffs’ contention * * * is not correct because the actual credit allowed depends on both household income and the taxpayer’s property tax liability. Manipulation 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.” (Emphasis added.) 77 Mich App 334-335.
After quoting the relevant language in Kuhn, supra, the Rosenbaum Court noted that, while the property tax credit scheme upheld in Kuhn did not contain a "household income” provision, the city income tax credit that was upheld did have such a provision. Analogizing the property tax credit based on household income to the city income tax credit, this Court stated:
*126"The city income tax credit provision, MCL 206.257; MSA 7.557(1257), permits a taxpayer to claim a credit for city income tax liability on a sliding scale with a maximum limit. Since the city income tax paid varies with the taxpayer’s income one could argue that the sliding scale credit has an impermissible effect of imposing a graduated tax rate. Both the Court of Appeals and the Supreme Court in their Kuhn opinions found the city income tax credit unobjectionable. Therefore, Kuhn cannot mean that tax credits may bear no relation to income. The city income tax credit will often bear a graduated relation to income, but once the credit is computed it is allowed as a credit without regard to a taxpayer’s income. The same is true for the property tax credit. The amount of the property tax credit is not based solely upon the taxpayer’s income, but rather upon the two independent variables of household income and property tax. Once the credit is computed it is allowed without regard to the taxpayer’s income. Therefore, it does not create either directly or indirectly a graduated tax rate or base. The logic of the Kuhn opinion requires the finding that the property tax credit provision does not violate Const 1963, art 9, § 7.” (Emphasis added.) 77 Mich App 335-336.
In my opinion, the above quoted language from Rosenbaum and Kuhn suggests that the credit reduction of 1982 PA 269 is unconstitutional in that the credits are not "allowed against the tax liability of all taxpayers without regard to their income” and "once the credit is computed” it is not automatically applied. Thus, these cases indicate that the actual computation of the credit may involve a formula that incorpoarates a graduated scheme but that the actual application of the credit, once computed, may not.
With an eye toward the presumption of constitutionality and the "common understanding” rule, the lower court relied upon the language in Kuhn and Rosenbaum and found that the effect and the language of 1982 PA 269 was contrary to Const *1271963, art 9, § 7. I agree with the trial court’s determination. In my opinion, Const 1963, art 9, § 7, prohibits regressive tax credits which have the natural effect of progressively increasing actual tax liability (at least for taxpayers with incomes between $65,000 and $75,000). Therefore, the effect and language of 1982 PA 269 contravenes the constitutional prohibitions of imposing an income tax graduated as to rate or base.
I would affirm.