Michigan road fund fix relies on sales tax increase

By Keith Goble, Land Line state legislative editor | Wednesday, August 28, 2013

Michigan lawmakers are looking at a plan to increase the state’s sales tax to benefit roads. Voters would get the final say.

Gov. Rick Snyder has his own plan. He’s called on lawmakers to approve a transportation funding plan that would raise an estimated $1.2 billion in new revenue each year. It includes an overhaul for how the state collects taxes at the pump.

The governor announced his 10-year, $12 billion plan early this year. It relies on taxes and fee increases. He said the new revenue would help protect existing assets from further deterioration.

Currently, the state’s per-gallon tax rate on fuels does not change. Lawmakers haven’t increased the 19-cent-a-gallon gas tax and 15-cent-a-gallon diesel tax since 1998.

Snyder wants to get rid of the current system and start taxing gas and diesel at the wholesale level. The change would allow tax collections to increase with inflation.

But lawmakers have not warmed up to his idea. Instead, one option drawing attention at the statehouse would help pay for road improvements by increasing the sales tax rate from 6 percent to 7 percent.

The state’s 6 percent sales tax on fuel raises about $1.2 billion annually. However, the revenue is not applied to roads. Instead, education and local governments reap the tax benefits.

The new proposal would allocate $1.2 billion to roads. The added revenue from the 1 percent sales tax increase would go to education and cities.

Critics say that now is not the right time to increase taxes. Others don’t want to see less money made available for schools.

Supporters say it doesn’t make sense that taxes paid at the pump are not applied to roads.

A proposal to change tax distribution requires an amendment to Michigan’s constitution. The change would require a two-thirds majority in the state House and Senate to clear the way for voters to make the final decision.

To view other legislative activities of interest for Michigan, click here.

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