A multi-bill transportation-funding package in Michigan is headed to the governor. The package ensures that all state fuel tax revenue is applied to roads.
Michigan elected officials on both sides of the aisle have spent years looking for a long-overdue transportation-funding fix. Time was short to avoid a funding cliff, as the last of the $3.5 billion in transportation bonds issued in 2019 is running out.
State lawmakers last week approved a bipartisan, nearly $2 billion transportation bill package. The package is part of a $51 billion overall state budget agreement sent to Gov. Gretchen Whitmer.
The five-year package includes language to swap taxes at the fuel pump to ensure the revenue is routed to roads. Most of the revenue will be allotted to local roads.
The Democratic governor described the state budget package as “a big win for Michiganders.”
“I ran for office in large part because I wanted to fix the damn roads,” Whitmer said in prepared remarks. “With this budget, we’re locking in a significant, bipartisan investment to fix state and local roads for decades to come.”
Statehouse Republicans also celebrated the funding approval.
“Fixing the roads cannot be a slogan. It must be a promise kept,” stated Rep. Donni Steele, R-Orion Township. “This budget delivers on that promise by dedicating real, ongoing funding to repair our roads and rebuild our bridges.”
Fuel taxes
Truck drivers and motorists fueling in the state pay a 31-cent state excise tax. Tax rates are adjusted each January.
There is also a 6% state sales tax on every gallon of fuel sold. The tax raises about $925 million annually. Much of the sales tax revenue is diverted away from transportation for purposes that include education.
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.
A second bill, HB4182, transfers revenue from the Michigan School Aid Fund to transportation. The transfer is due to the change in fuel tax collection that will be replaced with money from the general fund.
Another bill, HB4183, authorizes the fuel tax rate increase to start Jan. 1. The gas and diesel rates will each increase to 51 cents.
The House Fiscal Agency estimates the increase will raise $1.05 billion during the first full fiscal year.
The taxes 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.
Another bill, HB4181, eliminates the 6% specific tax levied on truck drivers who 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 be eliminated.
JUST PASSED: House Republicans led the way to a responsible, balanced, and transparent budget for the state of Michigan! This roadmap for our state contains SIGNIFICANT cuts to waste, fraud, and abuse, funds students at record levels, will fix your local roads, and bolster public… pic.twitter.com/DhzoasLLEs
— Michigan House Republicans (@MI_Republicans) October 3, 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 is described as tapping pot to help pay for potholes.
HB4951 closes a loophole that exempts the marijuana industry from the state wholesale tax. The tax is applied to similar smoking products.
Advocated for by the governor, the bill 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.
“This budget recognizes that roads are not optional,” Steele stated. “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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