A coalition of business groups and Republican lawmakers appealed to the Michigan Supreme Court Monday, arguing a one-year reduction in the state's personal income tax rate should be made permanent.

A spike in state revenues in 2022 triggered a provision in state law that resulted in the personal income tax rate for the 2023 tax year being reduced to 4.05% from 4.25%. For that year, the cut resulted in a savings of $150 for a couple with $75,000 in taxable income. It cost the overall state budget about $700 million.

Attorney General Dana Nessel interpreted the tax cut trigger — inserted into a 2015 road funding law — to apply for one year only. The administration of Gov. Gretchen Whitmer embraced that interpretation in crafting state budgets for the 2024 and 2025 fiscal years. But Republicans said the intent of the law was to trigger a permanent tax cut when revenues spiked.

Two business groups — Associated Builders and Contractors of Michigan and the National Federation of Independent Business — joined GOP lawmakers and other plaintiffs in a 2023 lawsuit asking a judge to declare the tax cut permanent. They lost in the Michigan Court of Claims and on March 7 the Michigan Court of Appeals upheld the lower court decision.

Now, the plaintiffs, whose lawsuit is backed by the Mackinac Center for Public Policy, have made a final appeal to the Michigan Supreme Court.

At the heart of the case is a disagreement over what is meant by the words "current rate" in the 2015 legislation. The state argues that refers to the 4.25% rate that was in place prior to the reduction for 2023. The plaintiffs argue that once that reduction took place, the "current rate" became 4.05%.

Patrick Wright, vice president for legal affairs with the Mackinac Center for Public Policy and the lead attorney on the appeal, said Monday the word "current" would be superfluous in the legislation unless it was referencing a rate other than 4.25%.

In its unanimous March 7 ruling, a three-judge panel of the Michigan Court of Appeals said the law is clear that the default personal income tax rate in Michigan is 4.25% and an analysis must be performed each year to see whether revenues were high enough to trigger a one-year reduction.

"There is no language ... to suggest that, when the exception is triggered, the reduced rate calculated pursuant to the statutory formula becomes a new permanent default rate that supersedes the default rate of 4.25%," the panel said.

"Plaintiffs' interpretation would make each reduction permanent and allow compounding reductions that could ultimately result in no income tax."

The plaintiffs noted in their appeal that both the House Fiscal Agency and Senate Fiscal Agency at various times interpreted the 2015 law to result in a permanent tax cut, once a reduction in the rate is triggered.