DETROIT – A new tax system went into effect that is changing the way Michigan taxes fuel.
Michigan is eliminating its 6% sales tax on gasoline and replacing it with a higher cents-per-gallon fuel tax, effective January 1st. The change will increase the state’s per-gallon fuel tax from 31 cents to 52.4 cents.
While the 21-cent hike may seem like a major increase, advocates say the impact on drivers will be minimal.
“Today what has happened is that the 6% sales tax is no longer being charged at the pump. It is now all gas tax,” said Brian Shoaf, vice president of public policy and business advocacy with the Detroit Regional Chamber.
The key difference lies in where the money goes. Unlike the sales tax revenue, which previously went into the state’s general fund, all money collected under the new fuel tax structure will be dedicated to road construction and repair.
“This doesn’t increase your cost to get from point A to point B, but does make sure that extra revenue goes to our roads,” Shoaf said.
The rise in gas prices comes from the yearly adjustment to the fuel tax for inflation. The Treasury Department set the increase at 2.7% for 2026.
The change has drawn mixed reactions from Michigan drivers. While some say they’re happy to see the funding go toward fixing the roads, others don’t see the benefit of the tax swap.
“I’m really happy to hear about that, as long as gas prices don’t go up any higher, I think everybody will be okay with that,” said Tierra Johnson.
“I don’t like it. I think it’s hard enough to get around now as it is and I’m a rideshare driver so that affects me directly,” said Jonathon Swanson.
The gas tax restructuring is part of a broader transportation funding package. State lawmakers are also implementing a new 24% wholesale tax on marijuana and earmarking funds from corporate income tax revenue, aiming to generate nearly $2 billion annually for road funding.
Drivers of electric and plug-in hybrid vehicles will also see higher costs beginning in 2026.
“We are very excited that the speaker, the governor, and the senate majority leader were able to come together to get this solution across the line,” Shoaf said.