Michigan House GOP plans to replace sales tax on gasoline to fund roads

House Republicans have not yet introduced their full road-funding plan, but alluded to it Thursday in a budget proposal for the Michigan Department of Transportation. The proposal to replace sales tax on gasoline with the state gas tax is projected to raise more than $542 million next year.

August 2019: Pressure builds on Michigan Republicans for roads plan to avoid shutdown
August 2019: As September looms, no Republican proposal yet to fix Michigan’s roads
July 2019: Republican ideas to fund Michigan road repairs taking shape over summer

House Republicans propose phasing out Michigan’s sales tax paid on gasoline, replacing it with a higher state gas tax dedicated to fixing roads.

The plan — which has not yet been formally introduced as legislation — would phase out the first 4 percent of Michigan’s 6 percent sales tax on gasoline in the first year, with the remainder following the next year, according to GOP lawmakers.

The state’s 26.3-cent-per-gallon gas tax would be increased by the same amount the sales tax is reduced, so drivers would see no net increase in what they pay at the gas pump under the proposal.

Related: Pressure builds on Michigan Republicans to share their road funding plan
Related: Here are 9 ways to build better roads in Michigan, from old tires to pig poop​
Related: Whitmer urges business to back gas tax, Michigan Republicans still balking

The House GOP proposal would raise $542.5 million in 2020, according to a House budget proposal for the Michigan Department of Transportation that passed out of a budget subcommittee Thursday.

That is nowhere near the $2.5 billion additional revenue that experts say is needed annually to repair the state’s deteriorating roads.

Of the amount projected to be raised under the House plan, $212.1 million would go to state-owned highways and $330.4 million would be dedicated to county and city roads.

The concept has been a priority of House Speaker Lee Chatfield, R-Levering, who has said the state’s primary road-funding issue is that the revenue from Michigan’s sales tax collected from drivers filling their cars’ gas tanks does not go to roads. Rather, it is distributed elsewhere, namely to K-12 schools and local governments as revenue sharing.

Related: Opinion | Puncturing the myths about Michigan road funding

“We are in a road crisis, and we’re doing our best as a Republican caucus to avoid another gas tax increase,” state Rep. Matt Maddock, R-Milford and chairman of the House transportation budget subcommittee, told reporters Thursday.

But some Democrats criticized the House roads budget because it doesn’t indicate how the state will replace the lost sales tax revenue for schools and municipalities.

The amount of money being generated from the sales tax shift still falls short of the more than $2 billion Gov. Gretchen Whitmer and independent experts have identified as needed to get most roads into good and fair condition within a decade, said state Rep. Leslie Love, D-Detroit, a subcommittee member.

“I remain concerned that this budget will have serious consequences for the people of this state,” Love said. “This is not a strategic plan to help us reach our transportation funding goals.”

Related: Electric car fees in Michigan would soar under Whitmer’s roads plan

Gideon D’Assandro, a spokesman for Chatfield, said schools and local governments will be protected from lost revenue, but declined to provide specific details before they are revealed in the full House appropriations process. House budgets for some other state departments have included funding cuts.

The sales tax generates an estimated $894 million in annual revenue from gasoline sales. At least one independent analysis, from the nonpartisan Citizens Research Council of Michigan, has considered the idea as a potential road-funding option.

“We can shift out the sales tax at the pump and replace it with a revenue-neutral gas tax,” Chatfield told reporters Thursday. “That is a responsible first step in ensuring that our roads are properly funded.”

Whitmer proposes a 45-cent-per-gallon gas tax increase, phased in over a year, that would raise about $2.5 billion for roads. The administration’s plan would give the most funding to the state highways and roads that carry the most traffic, and would get 90 percent of roads in good or fair condition by 2029.

Related: See how much a 45-cent Michigan gas tax might cost you

GOP House and Senate legislative leaders, meanwhile, have not included Whitmer’s gas-tax proposal in their roads budgets, saying average Michiganders can’t afford a hike that steep.

Whitmer’s office did not immediately respond to a message seeking comment.

“There’s a huge safety component that goes with not shoring up our roads and bridges, and what the House has proposed doesn’t raise the $2.5 billion in new and sustainable revenue that we need,” MDOT spokesman Jeff Cranson told Bridge Thursday. “We’re certainly going to watch closely as this process unfolds.”

The House proposal also includes language requiring MDOT to request proposals about selling some state-owned assets, including the Blue Water Bridge that connects Port Huron with Sarnia, Ontario in Canada, along with some airports and rail services.

Related: Opinion | Hell no to Gov. Whitmer’s new taxes, says Sen. Peter Lucido
Related: Opinion | My Michigan roads plan won’t break your pocketbook

Maddock, the subcommittee chairman, said he doesn’t believe those services should be state priorities.

“We have an obligation to avoid a gas tax increase, and I’m willing to look at any option that we have, including perhaps selling a bridge,” he said. “Should the state of Michigan be in the bridge-owning business?”

The Senate recently passed its transportation budget. The Senate version speeds up the phase-in of $600 million in diverted income tax dollars for roads as part of a 2015 legislative road-funding package, using $132 million in one-time funding.

Once passed, the separate House and Senate budgets ultimately will be negotiated to come up with a final compromise version; that in turn must be negotiated with the governor’s office.

Related: Whitmer to Detroit chamber: ‘There is not enough pot to fill the potholes.’

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Kevin Grand
Fri, 06/07/2019 - 7:26am

How did the nearly the $1-billion in sales tax collected at the pump, now drop to almost half that amount?

Not that this shouldn't be done, of course, but it would behoove those promoting this proposal to explain that sudden "disappearance".

Sun, 06/09/2019 - 9:39am

There are two major reasons for the discrepancy.

First, the roughly $1 billion of estimated sales tax collections on the purchase of motor fuels dates back to 2012 and 2013 when gas prices were significantly higher than they are today. Currently, estimated sales tax collections on motor fuel sales are in the low $800 million range.

Secondly, the proposal would remove two-thirds of the sales tax in FY 2019-20 (the first 4% of the sales tax) with the remaining 2% dropping off the following year.

So, you're dealing with a smaller amount of sales tax and only two-thirds is being removed in the first year.

Prof Ken in Zeeland
Sat, 06/08/2019 - 2:48pm

Here we go again! The GOPs solution is to attack kids and small town governments. The Engler GOP sold Prop A that ended property taxes and made sales taxes on auto sales and gas sales one of the major dedicated supports for public education and local "revenue sharing". Again they are trying another attempt to claw back the 6% sales tax on gasoline to use for a new GOP goal without raising taxes. What the GOP should do is start rolling back all those tax cuts they have given to big business and especially to the wealthy [one of the biggest beneficiaries to these tax cuts has been the DeVos family - go figure]. But these donors would stop paying the GOP legislators for protecting the interests of the wealthy so here we go again trying to fix the roads by taking the money away from our kids and as well as the funds used to fix the local roads and pay for other local expenses. The GOP is the party of the rich and powerful, they really don't care about our kids and our small towns. Remember this in November 2020 if you have kids, live in a small town, or a rural township before you vote for a Republican.

Sun, 06/09/2019 - 1:59pm

Except it's the small towns that give Republicans their largest support and are the most opposed to raising the gas tax the .45 you folks are pushing. Unless your intention was just to spew out the usual lefty boogiemen rather than the actual facts?

Mon, 06/10/2019 - 8:23am

Ken...while one facet of Proposal A did increase the sales tax from 4% to 6% and dedicated the entire increase to the School Aid Fund (SAF), it did nothing to alter the base or distribution of the existing 4% sales tax. The Constitutional earmarks of the existing 4% sales tax for the SAF and local revenue sharing already existed and remained unaffected by Proposal A.

Sun, 06/09/2019 - 8:37am

How can a gasoline tax mandated for road repairs be diverted to public schools? I thought property taxes went to fund public education. Taxes in Michigan are a bit mysterious to me; I'm a new transplant here.

Mon, 06/10/2019 - 4:45am

The tax in question here is the sales tax, not the tax on gasoline or diesel fuel. The sales tax applies broadly to tangible personal property sold at retail (clothing, kitchen appliances, restaurant meals, you name it), and the majority of sales tax revenue is Constitutionally dedicated. Although Michigan's sales tax rate is 6%, the distribution is actually different between the first 4% and the remaining 2%. Of the first 4%, 60% is Constitutionally dedicated to the School Aid Fund and an additional 15% is earmarked as revenue sharing to cities, villages, and townships. A smaller portion goes to the Comprehensive Transportation Fund (to support mass transit), and everything else (except for $9.0 million that supports health programs) accrues to the General Fund. All of the remaining 2% is dedicated to the School Aid Fund, which means about 73% of all sales tax revenue goes to the School Aid Fund.

It should be noted that these are not legislative choices...the public voted for these distributions when the Constitution of 1963 was ratified and in 1994 when Proposal A was passed, both via statewide elections.

So, if you exempt motor fuels from the sales tax and then increase the tax on motor fuels so that all taxes paid at the pump go to the Michigan Transportation Fund, you reduce sales tax revenue, and thus funding for schools and local units of government. And, if you back fill the lost revenue to schools and local government, something else gets shorted.

There's an appeal to the argument that all taxes at the pump should go to roads, but if you follow that logic, why isn't the sales tax on vehicles, tires, motor oil, automotive parts, etc. dedicated to roads? It's because the Constitution says otherwise.

Wed, 06/12/2019 - 8:15am

Except MI is one of very states that hits fuel purchases with both gas tax and sales tax. Giving us among the highest tax per gallon purchased, lowest amounts going to the roads and supposedly the worst roads in the universe! Although as you say not unconstitutional but is it smart? Does it lead to bad outcomes? Judge for yourselves.

Thu, 06/13/2019 - 11:00am

As far as Michigan collecting the largest combined tax per gallon purchased is concerned, Indiana's gas tax is 29.0 cents per gallon and is also subject to Indiana's 7.0% sales tax, so Indiana's combined per gallon taxes are higher than Michigan. Washington state also has higher combined per gallon taxes if you treat the 0.5% privilege tax as a sales tax (which is how Michigan's sales tax is identified in the Sales Tax Act). Georgia's combined rate is also likely higher (the gas tax itself is 31.59 cents per gallon), although local sales taxes vary by location so it's more difficult to quantify.

In addition, Michigan's motor fuel taxes of 26.3 cents per gallon are middle of the road (no pun intended) in the US. Michigan is #24 in gas taxes per gallon and #27 in diesel taxes per gallon. That hardly suggests that motor fuel taxes per gallon are the lowest amounts going to roads.

I guess I have trouble with the "all taxes at the pump must go to roads" argument. As I've pointed out elsewhere, sales tax collections on vehicles don't go to the roads, nor do sales taxes on anything else auto-related (although a small portion goes to the Comprehensive Fund to support mass transit). If sales taxes on gasoline "should" go to the roads, then all the other auto-related sales taxes should as well. And, if you make that leap, any sales tax collected from food purchases (either restaurants or non-exempt food purchased elsewhere) should be dedicated to the Department of Agriculture. And sales taxes from alcohol and tobacco products should be directed to the Department of Health and Human Services.

Sun, 06/09/2019 - 8:56am

Oops, you forgot to mention that Whitmer's plan diverts ~$600,000,000 of existing road funding to our broken over-funded schools. The usual shell game. Boy, bad roads are sure a great excuse for raising taxes.

Tue, 06/11/2019 - 4:46pm

Typical Republican solution: Rob Pete to pay Paul too little too late.

middle of the mit
Wed, 06/12/2019 - 7:10pm

Isn't this funny? Revenue neutral at the gas pump but what about the lost revenue to the schools and general fund?

{Gideon D’Assandro, a spokesman for Chatfield, said schools and local governments will be protected from lost revenue, but declined to provide specific details before they are revealed in the full House appropriations process. }

And the amount that will be saved? Smack between the capcon article https://www.michigancapitolconfidential.com/40-percent-of-whitmers-2020-... amount of $499.2 million and another commenters post of $600 million.

Kevin Grand told me to do some homework, so I did. If you look up Whitmer uses 40% of new gas tax not for roads you used to be able to find that capcon article. It's not there anymore but it was the only one stating anything like that. So I went to where they said to go and it led here. https://www.michigan.gov/whitmer/0,9309,7-387-90499_91677---,00.html

They didn't tell me which video or where in the video to go. Sounds like good reporting. I will tell you where. Bottom video @ 11;20.

The male rep with Whitmer will tell you what Bridge Magazine already has https://www.bridgemi.com/guest-commentary/opinion-puncturing-myths-about...

[The taxes we pay at the pump don’t all go to transportation, so why should we support raising those taxes? This statement is partly true, but misleading. In fact, the state constitution requires all revenues from Michigan’s per-gallon tax on gasoline and diesel fuel go to transportation.
However, Michigan is one of only seven states that also charges a sales tax on motor fuel, and the only state that doesn’t use any of that revenue for roads and bridges. The governor’s proposal would be constitutionally protected and must be spent on transportation purposes.]

And now they are trying to take money that they are mad and telling lies about to fix roads and hurt schools and they aren't really fixing anything they are just making a boondoogle that we will end paying more to dig ourselves out of.

As for MI charging a sales tax on gas, so what? Be glad we are not like other states that charge sales tax on food, clothing and household essentials. It sucks but it is a sales tax. Are we going to start requiring each sales tax goes to its specific department? How will we fund schools? Or is that the point?

I don't like paying taxes anymore than you. But why do we look at taxes like confiscation? Are you mad you have to pay to go to the movie theater? Are you mad that you have to pay a cable bill? How about how much you pay for a new car? These are things we use, and I can't understand why anyone would think bottle necking roads with toll booths is preferable to paying a little more at the pump.

I agree .045 is a bit much but what are we going to do? We can't tax business. That means the rest of us have to pick up the tab, or go without. Gravel roads anyone?