An unfortunate development today from the U.S. Supreme Court, where the justices declined to hear several challenges to a retroactive taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. law passed by Michigan. In 2014, Michigan decided that a tax compact it had signed in 1967 was no longer advantageous and repealed it, retroactively to 2008. This harmed a number of business taxpayers who had been counting on tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. s.
We filed a brief in the case that noted past Supreme Court cases permitting only a “modest” period of retroactivity, and arguing that six years or longer is dangerously long, depriving taxpayers of reliance on the laws as they exist. The lack of clear rules on the constitutional limits of retroactive state tax laws has led to states pushing the boundaries of Due Process further and further.
The Supreme Court is asked to hear over 8,000 cases a year, but only takes 70 to 80 of them. Thus, they don’t hear over 99 percent of the cases they’re asked to hear, and sometimes it seems like the odds are even higher for tax cases. As much as I wished retroactive tax laws went away, without a clear standard, this problem will only continue to proliferate.
We at the Tax Foundation will be launching a new project to bring greater awareness to retroactive tax increases. Stay tuned.
The cases were Sonoco Products Co. v. Michigan Department of Treasury, No. 16-687; Skadden, Arps, Slate, etc. v. Michigan Department of Treasury, No. 16-688; Gillette Commercial Operations v. Michigan Department of Treasury, No. 16-697; IBM Corp. v. Michigan Department of Treasury, No. 16-698; Goodyear, et al. v. Michigan Department of Treasury, No. 16-699; DirecTV Group Holdings v. Michigan Department of Treasury, No. 16-736.
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