Taxpayer Argued Unsuccessfully that the Rule was Arbitrary and Capricious
In Thomas and Lobato v. Department of Treasury, Michigan Court of Appeals, No. 303184, August 16, 2012, the Michigan appellate court found that a rule concerning the personal income tax farmland preservation credit was valid. The taxpayer argued that the rule, which included the farmland preservation credit in federal adjusted gross income and household income, was invalid. The court noted that rules are valid so long as they are not unreasonable.
The rule's validity was determined by this test: (1) if the rule was within the subject matter of the enabling statute, (2) if the rule complied with the legislative intent under the enabling statute, and (3) if the rule was arbitrary or capricious. According to the statute, the Legislature intended to grant the Department of Treasury broad powers to properly ascertain the amount of tax owed. Also, if the rule is rationally related to the purposes of the statute, it is neither arbitrary nor capricious. Thus, because the department had the authority to promulgate rules regarding the computation of the income tax, and the department used that authority as intended by the Legislature, the court could not declare the rule arbitrary or capricious.