Gov. Snyder wins major tax ruling from Michigan Supreme Court

By Tim Martin Associated Press LANSING (AP) -- Key parts of a Michigan law that taxes public pension income for the first time are constitutional, the state Supreme Court said last Friday in a major victory for Gov. Rick Snyder. Taxing some forms of pension income is a significant part of Snyder's strategy to change Michigan's tax structure and improve the business climate. But the plan, which also will make more private retirement income subject to tax, sparked protests at the Capitol this year -- especially by public employee unions that opposed it. Snyder, a Republican, had asked the Supreme Court, which has a GOP majority, to review the tax's legality in an effort to trump any challenges in lower courts. The law is scheduled to take effect Jan. 1. The court ruled 4-3 on the major issues at stake. Republican justices said reducing or eliminating the statutory exemption for public pension incomes did not violate the constitution. The court also said that determining eligibility for income tax exemptions on the basis of when a person was born was not illegal. "If the ratifiers of the Constitution had intended to limit the Legislature's authority to tax pensions in the same manner as all other forms of income, they would have expressly said so," Justice Stephen Markman wrote. But there is at least one sticking point that Snyder and lawmakers will have to address. The court unanimously said that determining eligibility for income tax exemptions and deductions on the basis of total household resources created a type of graduated tax, which is illegal. Under the ruling, wealthier taxpayers won't lose deductions on total income that would have been phased out under the new law. The court said that portion of the law could be addressed without affecting the rest of the law's legality. Before the court decision, state officials had predicted the law would generate as much as $330 million in 2013. A statement from the Snyder administration said changes from the ruling could create an estimated $60 million shortfall for the state's 2012 fiscal year budget. But Snyder said he was "pleased" overall with the court's ruling. "Our administration has been unwavering in its position that the removal of the public pension income tax exemption was the right and prudent thing to do," Snyder said in a statement. "It will provide for the long-term structural stability of the state's budget while minimizing the impact on current retirees and seniors. This will help get Michigan's fiscal house in order and economy back on track." Opponents of the law say it will reduce the pension income that public-sector employees have already earned. They also say the tax violates public workers' constitutional right to not have their contracts impaired. The AARP of Michigan said in a statement Friday that it wants the Legislature to repeal the "unfair and unpopular tax on public and private pensions." The Michigan AFL-CIO said the ruling is "a partisan decision that will hurt Michigan seniors, and is yet another example of the misplaced priorities of Lansing politicians." It was not immediately known what legal steps opponents might take next. Under the new law, residents born before 1946 would continue to get the same tax breaks they have now, but younger retirees would have some retirement income taxed, depending on when they were born. Chief Justice Robert Young Jr., along with Justices Mary Beth Kelly and Brian Zahra, joined Markman in the majority opinion. Justices Michael Cavanagh and Marilyn Kelly dissented in part and concurred in part. Justice Diane Hathaway dissented, although she agreed the income-based criteria for determining tax liability created a graduated income tax. Published: Tue, Nov 22, 2011