The Michigan Supreme Court ruled 4-3 in In Re Request for Advisory Opinion Regarding Constitutionality of PA 38 bringing to a close the question of the future of the pension tax as passed by the Legislature in May as a portion of overall tax reform.
The Court held that the imposition of personal income tax on public-sector and private sector pensions was constitutional, as well as the provision basing the determination of eligibility for exemptions on the taxpayer’s birth date.
Ultimately reversed by the Court is the provision basing eligibility for exemptions and deductions based on the taxpayers “total household resources.” The Court found that this provision violated the Michigan Constitution’s ban on graduated income tax. Chief Justice Robert Young, Jr., Justice Stephen Markman, Justice Mary Beth Kelly, and Justice Brian Zahra issued the majority opinion. Justice Michael Cavanaugh, Justice Marilyn Kelly, and Justice Diane Hathaway dissented.
The ruling will cause an estimated $60 million negative revenue impact in fiscal year 2011-2012 – a hole Governor Rick Snyder and the Legislature will need to fill.