BUTCHER v DEPARTMENT OF TREASURY
Docket No. 74293
Michigan Court of Appeals
Submitted March 13, 1984. - Decided October 18, 1984.
141 MICH APP 116
Leave to appeal granted, 422 Mich -.
- Although the property tax credit is allowed with regard to a taxpayer‘s income, it is not violative of the prohibition against a graduated income tax rate. The tax credit formula does not affect the fixed flat rate income tax liability imposed upon the taxpayers. Rather, the tax credit provision creates a property tax rebate program, which is administered by means of the tax credit against income tax.
- Furthermore, the property tax credit does not rely solely upоn a taxpayer‘s income, but is dependent upon whether the taxpayer has paid any property taxes and upon the amount of those property taxes.
Reversed.
V. J. BRENNAN, J., dissented. He would hold that the graduated tax credit reduction is unconstitutional because the credits are not allowed against the tax liability of all taxpayers without regard to income and is not autоmatically applied. The tax credit formula has the effect of progressively increasing actual tax liability, at least for those taxpayers whose incomes are within the specified range. He would affirm the grant of summary judgment.
REFERENCES FOR POINTS IN HEADNOTES
[1] 16 Am Jur 2d, Constitutional Law § 212 et seq.
[2, 3] 71 Am Jur 2d, State and Local Taxation § 469.
1. CONSTITUTIONAL LAW — STATUTES — JUDICIAL CONSTRUCTION.
A statute will not be found to be unconstitutional unless it is plain that it violates some provisions of the constitution; the constitutionality of the act will bе supported by all possible presumptions not clearly inconsistent with the language and the subject matter, while construing the constitutional language within its common understanding.
2. TAXATION — PROPERTY TAX — TAX CREDITS — GRADUATED INCOME TAX — CONSTITUTIONAL LAW.
The property tax credit incremental reduction formula applicable to taxpayers with incomes above specified levels does not affect the fixed flat rate income tax liаbility of those taxpayers and therefore does not violate the constitutional prohibition against a graduated income tax (
DISSENT BY V. J. BRENNAN, J.
3. TAXATION — PROPERTY TAX — TAX CREDITS — GRADUATED INCOME TAX — CONSTITUTIONAL LAW.
The property tax credit incremental reduction formula applicable to taxpayers with incomes above specified levels violates the constitutional prohibition against a graduated income tax because the effect of the formula is to progressively increase actual tax liability for those taxpayers affected (
Robert E. Butcher, for plaintiff.
Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Richard R. Roesch, Assistant Attorney General, for defendant.
Before: HOOD, P.J., and V. J. BRENNAN and P. E. DEEGAN,* JJ.
PER CURIAM. The Department of Treasury appeals as of right from the trial court‘s October 7, 1983, order and judgment granting plaintiffs’ motion for summary judgment.
* Circuit judge, sitting on the Court of Appeals by assignment.
Plaintiffs filed this suit alleging that they earned a taxable income in excess of $65,000 in 1982 and were affected by the credit reduction formula mandated by 1982 PA 269. Plaintiffs alleged that 1982 PA 269 was unconstitutional because the property tax credit reduction formula violated
The parties brought opposing motions for summary judgmеnt. The trial court granted plaintiffs’ motion finding that 1982 PA 269 was unconstitutional because it violated
On October 25, 1983, this Court granted defendant‘s motions for a stay of procеedings and immediate consideration. The only issue defendant raises in this appeal is whether 1982 PA 269 violates
“No income tax graduated as to rate or base shall be imposed by the state or any of its subdivisions.”
The plaintiffs argue that the incremental property tax credit reduction formula mandated by 1982 PA 269 indirectly imposes a graduated income tax rate on taxpayеrs with annual adjusted household incomes between $65,000 and $74,000. We disagree.
The Court will not declare a statute unconstitutional, or affirm a trial court‘s finding of such unconstitutionality, “unless it is plain that it violates some provisions of the Constitution and the constitutionality of the act will be supported by all possible presumptions not clearly inconsistent with the language and the subject matter“. Oakland County Taxpayers’ League v Oakland County Supervisors, 355 Mich 305, 323; 94 NW2d 875 (1959). In addition to the presumption of constitutionality given to statutes, courts construe constitutional language within its “common understanding“. To do so, courts must consider the circumstances surrounding the adoption of the constitutional provision at issue as well as the purpose of the provision. Traverse City School Dist v Attorney General, 384 Mich 390, 405-406; 185 NW2d 9 (1971).
In Kuhn v Dep‘t of Treasury, 15 Mich App 364;
“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.” Kuhn, supra, 384 Mich 389.
This Court said the common understanding of
In Rosenbaum v Dep‘t of Treasury, 77 Mich App 332; 258 NW2d 216 (1977), lv den 402 Mich 826 (1977), the plaintiffs similarly challenged the constitutionality of the property tax credit computation formula. That formula allows a credit against state inсome tax liability equal to 60% of the amount by which property taxes on a homestead in a taxable year exceed 3.5% of the claimant‘s total annual household income.
“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 thе 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 tаxpayer‘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 violateConst 1963, art 9, § 7 .” Rosenbaum, pp 335-336.
In this case, plaintiffs argue that 1982 PA 269 does violate
While it is true that the property tax credit is allowed against income tax liability with regard to a taxpayer‘s taxable income, we still find no constitutional violation. The dispositive question is whether the credit at issue indirectly creates a progressive or graduated income tax rate.
The property tax credit provisions of the income tax act create a property tax rebate program. That program is primarily designed to relate local property taxes to income or to the ability to pay those taxes rather than to the actual value of the property so taxed. The major recipients of this propеrty tax rebate program are senior citizens, veterans, the blind and disabled, and the low-incomed. See,
Those eligible for this property tax rebate under the formula,
Furthermore, as was discussed in Rosenbaum, whether an income taxpayer in the $65,001 to $74,000 range receives a property tax credit at all depends upon (1) whether that taxpayer had indeed paid any property taxes, and (2) whether that income taxpayer is eligible for a credit by having
Therefore, 1982 PA 269 does not violate
Reversed.
V. J. BRENNAN, J. (dissenting). I respectfully dissent.
The plaintiffs’ position is that 1982 PA 269 contravenes
“(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.”
In Kuhn, the plaintiffs attacked the act‘s (the Michigan Income Tax Act of 1967,
“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 reсeipts. 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, nоr 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 tаx 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.’
(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% оf 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 crеdit 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 graduatеd 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 incоme 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:
“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 сredit 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 inсome. 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 violateConst 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 effеct and the language of 1982 PA 269 was contrary to
I would affirm.