Lansing — Unless state lawmakers act fast to change the state’s tax code, Michigan residents will be ineligible for state income tax exemptions under the new federal law, State Treasurer Nick Khouri said.
Khouri told The Detroit News Wednesday that the tax cut legislation Congress passed and President Donald Trump signed into law in late December effectively eliminates income tax exemptions. This could lead to a collective $1.4 billion tax increase in Michigan, some economic analysts have predicted.
But Khouri said he’s confident state lawmakers will want to act soon to push back against the federal tax law’s “unintentional impact on state tax collections.”
The change will not affect 2017 income tax filing, which are due in April. But it could affect 2018 taxes, which will be filed in 2019.
“It’s technically an easy fix,” Khouri said in a telephone interview. “This is the type of thing we should change in state law and not leave it to administrative decision. The sooner the legislature deals with it the better.”
Khouri’s statements mirror an earlier sentiment from Gov. Rick Snyder, who told Gongwer News Service and the Associated Press last month that the federal repeal of personal exemptions would likely increase the amount of state income tax paid by some Michigan individuals.
House Speaker Tom Leonard was not available to discuss the issue Wednesday, said spokesman Gideon D’Assandro. But D’Assandro said Leonard will be looking into the issue.
“I can tell you, though, that the speaker has been a consistent advocate for this state’s hard-working taxpayers, and he is happy to see the governor now join him at the table looking for ways to help Michigan families,” D’Assandro said. “Everyone is still looking into the issue and reviewing the new law, but the speaker and the governor will speak soon about potential solutions.”
Senate Majority Leader Arlan Meekhof spokeswoman Amber McCann said “there will be an ongoing discussion once we return to session.”
Jim Stansell, senior economist for the House Fiscal Agency, agreed with Snyder and Khouri’s analysis. But Patrick Anderson, founder of Anderson Economic Group and a former state budget official, disagreed in a letter sent Friday to Khouri and urged the top Snyder official to clarify the matter.
In a letter Khouri sent to Anderson on Wednesday, the treasurer said he disagreed and reiterated Snyder’s stance.
Khouri wrote that the law is clear in that state exemptions are determined by the number of federal exemptions permitted. Because the new law zeros out any exemptions, state law would have to be changed to allow for personal exemptions in state taxes. That shift would have no affect on federal exemptions, which have been effectively eliminated, the treasurer said.
“Since the federal 1040 (form) will not require taxpayers to calculate personal exemptions that have zero value, Michigan residents would not be able to claim personal exemptions on their state tax returns under current state law,” Khouri wrote to Anderson.
“More generally, and more important, we do not want to leave an ambiguous tax situation open for interpretation by individual state officials or the courts,” he continued in his letter. “Addressing uncertainty for taxpayers is a key responsibility of the state Legislature. That is why I believe it is incumbent upon the Legislature to clarify the treatment of personal exemptions for state tax purposes in-light-of recent changes at the federal level.”