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Michigan's Complex Path to Increasing Gas Tax Revenue

On May 5, Michigan voters will go to the polls to decide on a one percent increase in the sales tax, with revenue dedicated to education. But approval of the measure sets off other changes, including converting the gas excise tax to a wholesale tax.
January 30, 2015, 6am PST | Irvin Dawid
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"A broad coalition of Republicans and Democrats approved a last-minute deal in December to raise spending on roads by $1.2 billion, as long as voters approve a 1-cent sales tax hike -- from 6 percent to 7 percent -- in May," writes Daniel C. Vock, Governing's transportation reporter.

A PROPOSAL TO AMEND THE STATE CONSTITUTION TO ELIMINATE SALES AND USE TAXES ON GASOLINE AND DIESEL FUEL, ALLOW AN INCREASE IN THE SALES TAX RATE, DEDICATE REVENUE FOR SCHOOL AID, AND REVISE ELIGIBLE SCHOOL AID USES. [Mlive.com]

"The package passed by the legislature is a complex one, but [Gov. Rick Snyder, in his annual State of the State address] focused primarily on its potential to increase safety," writes Vock. "Vote yes so we can have safer roads," he said. 

A major part of the package would be the new wholesale sales tax of gas and diesel that would replace the sales and excise taxes on fuels. According to the Legislative Analysis [PDF], passage of the ballot measure would trigger the implementation of the following:

House Bill 5477 would, among other changes, amend the Motor Fuel Tax Act by converting the current specific taxes of 19 cents per gallon for gasoline and 15 cents per gallon for diesel into a 14.9% ad valorem tax calculated against the average wholesale prices of gasoline and diesel, effective October 1, 2015. Although the wholesale rate remains fixed at 14.9%, the actual cents-per-gallon levy for gasoline and diesel will vary in conjunction with the average wholesale prices. 

The bill defines the initial average wholesale prices as the 12-month rolling averages for gasoline and diesel from July 2013 through June 2014, which means the initial tax rates would be 41.7 cents per gallon for gasoline and 46.4 cents for diesel. 

Michigan's total state gas tax per gallon as of Jan. 1, according to API is 30.26 cents; 33.98 cents for diesel, making it the sixteenth highest in the nation per API chart [PDF]. Average price for gas as of Jan. 20 was $2.07, well below the U.S. average of $2.27.

In addition, the measure "would trigger a separate law creating a $75 annual surcharge on electric vehicles and a $25 surcharge on most hybrids," writes Jonathan Oosting, Capitol reporter for MLive Media Group. "The new fees are designed to spread the cost of road maintenance to drivers who pay little or no state gas taxes, which are a major source of infrastructure funding in Michigan."

Another crucial element of the package is "restoration of cuts to the state earned income tax credit made in 2011," writes Vock, which helps lower income, working residents deal with the regressive impacts of an increased sales tax and a potentially increased gas tax..

The key, though, is that voters must approve the general sales tax increase on May 5. However, Oosting writes that "the campaign may already be in trouble,” according to Matt Grossman, an associate professor of political science at Michigan State University.

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Published on Tuesday, January 27, 2015 in Governing
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