2014-12-25 / News

State House and Senate Enact Tax Reform to Fix Michigan Roads

Several tax increases and shifts will generate $1.2 billion for Michigan’s roads, $300 million for Michigan schools, $130 million for municipal bus system subsidies, and $95 million for local governments. The Michigan House and Senate passed the measures early Friday morning, December 19, and voters will have to approve them in May for them to take effect.

The bipartisan-supported votes came during the last week of the 2013-2014 Michigan Legislature. For the past several weeks, state lawmakers and Governor Rick Snyder have worked to develop a plan to generate more money to fix Michigan’s crumbling roads, while protecting tax revenue dedicated to schools.

Among the measures passed December 19 was a constitutional amendment (House Joint Resolution UU) that seeks to increase the state sales tax from 6% to 7%. Voters will consider the amendment in an election scheduled for May 12, 2015. If the sales tax increase fails, other increases and tax shifts designed to generate more road funding will not go into effect.

Another important highlight is House Bill 5477, which dissolves the current cents-per-gallon state gas and diesel tax, replacing it with a 14.9% tax on the wholesale price of fuel. The new wholesale gas tax is equivalent to a 42¢ per gallon tax at current fuel prices, as opposed to the current 19¢ per gallon of gasoline and 15¢ per gallon for diesel. The wholesale tax revenue will be dedicated to fixing roads. Michigan’s gas tax was last raised in 1997.

Other House bills (4539 and 5492) will offset most of the gas tax increase by exempting fuel purchases from the state sales tax. To replace the funds for Michigan schools that would have been lost with the fuel purchase exemption, the legislature increased the overall sales tax to 7%. Most sales tax revenue (including the revenue currently captured from fuel purchases) is dedicated to schools and local governments.

About $95 million will be generated each year for another change that increases vehicle registration taxes (House Bill 4630).

An additional $50 million will be collected each year from a pair of bills (Senate Bills 658 and 659) that impose sales and use taxes on Internet and catalogue purchases made from out-of-state merchants.

Governor Snyder announced the plan to increase road funding Thursday, December 18.

In addition to being dangerous for motorists by causing accidents, Michigan’s poor roads are bad for tourism.

Friday, December 5, Governor Snyder remarked, “When I do town halls and events in every corner of Michigan, we talk about roads, and I can tell you I still haven’t found a person that likes the roads in Michigan. Pure Michigan Tourism is one of our largest industries, and if you think about it, are we creating a great experience when we’re bouncing people around on the roads?”

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