After years of political back-and-forth over how to pay for better roads and bridges, Michigan leaders have struck a deal they say will finally get the job done.
State elected officials have spent years wrangling to find a transportation funding fix. A bipartisan budget deal reached this fall is touted with fuel taxes as the long-awaited solution for roads, bridges, and transit.
Gov. Gretchen Whitmer signed into law a multi-bill package that ensures all state fuel tax revenue is applied for transportation purposes.
The nearly $2 billion bill package is part of an $81 billion overall state budget agreement.
“I ran on fixing the damn roads, and I’m proud to keep my promise and get it done,” Whitmer said in prepared remarks.
I promised to fix the damn roads and we’re getting it done. This year’s balanced, bipartisan budget delivers a record $2 billion to repair state and local roads, support tens of thousands of good-paying jobs, and make your drive safer and faster.
Let’s move some dirt!
— Governor Gretchen Whitmer (@GovWhitmer) October 23, 2025
Fuel tax adjustment
Truck drivers and motorists fueling in the state pay a 31-cent state tax. The rate is adjusted each January.
There is also a 6% state sales tax on every gallon of gas or diesel sold.
The sales tax raises about $925 million annually. Much of the tax revenue is diverted away from transportation.
The bill package includes a tax swap at the fuel pump.
HB4180 eliminates the sales tax collected on fuel purchases. Instead, an equivalent increase in the excise tax will be made.
The switch enables the state to apply all fuel tax revenue for transportation purposes. Michigan state fuel tax revenue is constitutionally dedicated to transportation.
House Speaker Matt Hall, R-Richland Township, called the bill package the biggest roads deal in the state’s history.
“Our plan finally ensures every penny you pay at the pump goes to road funding, something people have demanded for years,” Hall stated.
The state fuel tax will increase from 31 cents per gallon to 51 cents on Jan. 1.
Gas and diesel tax rates will continue to be adjusted annually for inflation. For the coming year, the adjustment increment will be based on the average of the tax rates in effect during the fall of 2025.
The amount of the annual increase will be limited to 5% of the previous fuel tax rate base.
Fuel sales tax revenue that has been routed to education will be replaced with money from the state’s general fund.
Another bill, HB4181, eliminates the 6% specific tax levied on truck drivers that use diesel or alternative fuel in the state. The credits available against these taxes to offset any sales tax paid on fuel purchased in the state will end Jan. 1.
It just makes sense: The taxes you pay at the pump should go toward maintaining quality roads. And now they will – thanks to the road funding plan put forth by House Republicans and Rep. Steve Frisbie @commishfriz pic.twitter.com/1cEu0tmpm2
— Michigan House Republicans (@MI_Republicans) October 17, 2025
Other revenue sources
A portion of road revenue will come from eventually redirecting about $1 billion from the state’s 6% corporate income tax to transportation via HB4961. The money now goes to the general fund.
Another bill taps marijuana sales to help pay for road work.
HB4951 closes a loophole that exempts the marijuana industry from the state wholesale tax. The tax is applied to similar smoking products.
The new law creates a new 24% wholesale tax on marijuana. The tax will be added to marijuana sold to retailers.
The state already collects a 10% excise tax on recreational marijuana and a 6% sales tax on retail marijuana sales.
Including the marijuana industry in the wholesale tax collection is estimated to initially add $420 million to help fix roads across the state.
The tax increase is set to take effect Jan. 1.
Rep. Donni Steele, R-Orion, said the budget recognizes that roads are not optional.
“Every parent driving to school, every worker commuting to the job site, every truck carrying Michigan products will benefit from roads that last.” LL
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