Michigan’s new fuel tax to rise by about 1.5 cents per gallon Jan. 1

• On the identical day that Michigan’s new 51-cent excise tax takes impact, Jan. 1, motorists can anticipate that tax to extend by about 1.5 cents per gallon, bringing the entire gas tax to about 52.6 cents.
• On the identical time, the 6% gross sales tax on gas gross sales will probably be abolished.

LANSING — Michigan, the place its roads have by no means been among the many finest within the nation, could have the fourth-highest gas taxes within the nation on Jan. 1 (up from 18th) and will probably be second solely to California amongst states the place gas taxes are listed to inflation.

The shift in Michigan’s excise tax rankings is the results of the street funding settlement baked into the 2026 state price range settlement reached between Gov. Gretchen Whitmer and state lawmakers. The plan, which features a new 24% wholesale tax on marijuana, is anticipated to extend street funding in Michigan by $2 billion per 12 months as soon as totally carried out.

A key a part of the plan was to get rid of the 6% gross sales tax on gas gross sales whereas rising the 31-cent-per-gallon gas tax by about 20 cents per gallon, so that every one gas tax income would go to the roads, however the value on the pump would stay unchanged.

Nonetheless, on the identical day that the 51-cent excise tax — which is only a tax levied on the sale of particular items — goes into impact, January 1, Michigan motorists can anticipate that tax to extend by about 1.5 cents per gallon, bringing the entire new gas tax to about 52.6 cents per gallon. the House Fiscal Agency said.

That is as a result of Michigan’s gas tax is listed to annual inflation beneath a 2015 state legislation, with the rise taking impact each January 1. And beneath Home Invoice 4183, which Whitmer signed into legislation, the 2025 inflation price used to regulate the 2026 excise tax will probably be utilized to the brand new 51 cents per gallon tax, not the 31 cents per gallon tax that was in impact in every single place. 2025, Treasury Division spokesman Ron Leix confirmed on October 30.

Solely California, Pennsylvania and Washington will impose the next gas tax than Michigan beginning Jan. 1, based on information from the U.S. Power Info Administration. Of these states, solely California’s 61.2 cents per gallon excise tax is listed to inflation, based on the Tax Coverage Heart, that means Michigan may surpass Washington state’s 55.4 cents per gallon excise tax and Pennsylvania’s 57.6 cents per gallon excise tax inside just a few years.

In terms of whole state gas taxes, Michigan stays sixth in america, behind the states of California, Illinois, Washington, Pennsylvania and Indiana. This is evident from data from the Tax Authorities.

Within the not so distant previous, as in a 2018 study by road mapping company Lvl5Michigan’s roads are among the many worst within the nation.

Michigan’s rankings have usually improved in recent times, probably as a result of $3.5 billion in street bonds Whitmer initiated in 2020 — a lot of the cash now being spent, based on officers.

A recent research from Construction Coverageprimarily based on information from the Federal Freeway Administration, Michigan ranked twenty second within the nation for the worst roads, with 12.5% ​​of main roads in poor situation.

A study published in February by the Journal of Consumer Researchprimarily based on information from the FHWA and the Bureau of Transportation Statistics, Michigan’s roads ranked twenty seventh worst within the nation, with 25.6% of city roads and 12.4% of rural roads in poor situation.

Sen. Thomas Albert, R-Lowell, mentioned Oct. 30 that he voted towards the street funding plan, primarily as a result of it doesn’t replenish the funding that native governments will lose because of eliminating the gross sales tax on gas gross sales.

However Albert mentioned he was additionally involved that changing the gross sales tax with a gas tax was not income impartial, as officers had described it. Changing the gross sales tax with a 20-cent gas tax was primarily based on an assumed pump value of $3.33 per gallon, Albert mentioned. Each time the value of gas falls under that, the 20 cents per gallon leap within the gas tax will imply a tax enhance, he mentioned.

“As well as, the automated inflation adjustment drives taxes up additional,” Albert mentioned.

The precise quantity of the January 1 inflation adjustment is often introduced by the Ministry of Finance across the finish of November, Leix mentioned. In keeping with the U.S. Bureau of Labor Statistics, the buyer value index was up 3% as of September in comparison with the earlier 12 months. Annual inflation calculated at 3% would lead to an upward adjustment to Michigan’s gas tax of roughly 1.5 cents per gallon.

Placing an additional $2 billion a 12 months into Michigan’s roads is a couple of billion {dollars} a 12 months lower than each Whitmer and Home Speaker Matt Corridor, R-Richland Township, mentioned had been wanted.

Will Michigan street situations enhance to fulfill the state’s excessive gas tax rating?

Lance Binoniemi, vp of presidency affairs for the Michigan Infrastructure and Transportation Affiliation, advised the Detroit Free Press in October that the plan will enhance street situations, however “we simply do not know the way a lot but.”

On the Michigan Division of Transportation, spokesperson Jocelyn Garza mentioned gas taxes are only one income for Michigan roads, and registration charges are one other, so they do not present the total image on their very own. Moreover, totally different states fund roads in numerous methods, so merely evaluating state gas taxes additionally does not give the total image, she mentioned.

Michigan has come close to achieving 90% good and fair conditions in recent years on state headlines, however even with the brand new funding, a decline in situations is anticipated within the coming years, Garza mentioned.

However a lot of the brand new funding is concentrated on native roads, Garza mentioned. Native officers should talk about what enhancements may be seen there, she mentioned.

“Happily, we are going to see investments in public transit and different modes of transportation,” and a pilot research of street use charges as a potential substitute for gas taxes may result in a extra sustainable financing mannequin and “enhancements in street situations that our division is dedicated to attaining,” Garza mentioned.

Free Press author Clara Hendrickson contributed to this report.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com.