01/02/2026
FY 2026 Budget - Road Funding, Tax Reallocation:
The new tax structure that takes effect in January is part of an overall transportation agreement designed to raise enough money to repair our crumbling infrastructure faster than it’s deteriorating, with heavy emphasis on local roads.
One of the main goals of this past budgeting season was to find a way to fix our roads. Michigan drivers were paying taxes into a system that did not necessarily go directly to fixing roads. After months of planning, Michigan will finally have a long-term road funding plan. Part of that includes a revenue-neutral overhaul of the taxes collected at the pump, ensuring all gas tax revenue will be re-directed toward roads:
HB 4181 eliminates the 6-percent sales tax charged for each dollar of gasoline sales starting Jan. 1, 2026. Based on the average cost of gasoline over the past three years, customers have been paying about 20 cents in sales tax for each gallon of gasoline they purchase.
HB 4183 increases Michigan’s gas tax from 31 cents a gallon to 51 cents starting Jan. 1, 2026. This shift ensures that all taxes collected at the pump will go toward roads.
To make sure schools do not lose funding because less sales tax is being collected, the state dedicated $600 million in income tax revenue to make schools whole.
Coupling the elimination of the sales tax on gas along with the 20 cents increase per gallon ensures that the total pump price remains unchanged for the consumer while providing a more stable and predictable funding for transportation as it removes volatility tied to fuel prices. The key difference in the changes that these bills enact is how we direct funding. The gas tax all goes to roads, but the sales tax goes to other things. With this swap, all taxes now will be dedicated to transportation infrastructure instead of being split across other budget areas. That is how they increased funding for roads while leaving drivers unaffected at the pump.