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DATE: |
April 12, 2007 |
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TO: |
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FROM: |
William E. Hamilton |
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RE: |
This memo provides background information on Michigan Motor Fuel Taxes.
TheMichigan motorist pays three separate taxes on gasoline purchased at the pump:
Motor Fuel Tax - The state levies a 19-cent per gallon excise tax on gasoline used in motor vehicles. This tax is dedicated by the 1963 Michigan Constitution for transportation purposes. Revenue from the 19-cent per gallon gasoline tax is first credited to the Michigan Transportation Fund (MTF) and is then distributed to other funds and programs according to a formula established in Public Act 51 of 1951. The 19 cent per gallon gas tax is expected to generate $907 million for transportation in the current fiscal year (FY 2006-07). This represents approximately 50% of the state funds used to support the state transportation budget.
The state also levies a 15-cent per gallon tax on diesel motor fuel.
Federal Excise Tax - In addition to Michigan’s 19-cent per gallon gasoline excise tax, the federal government levies an 18.4 cent per gallon federal gasoline excise tax, and a 24.4 cent per gallon diesel fuel excise tax. These taxes are earmarked for the Federal Highway Trust Fund, which is distributed to the states for highway and public transportation programs.
Michigan Sales Tax - In addition to the two excise taxes noted above,Michigan levies a 6% sales tax on retail sales, including gasoline purchases. The sales tax is based on the motor fuel purchase price, including the federal excise tax, but not including the state Motor Fuel excise tax.
TheMichigan sales tax is subject to earmarking: One hundred percent (100%) of the tax at 2%, and sixty percent (60%) of the tax at 4%is dedicated by the state Constitution to the School Aid Fund. Fifteen percent (15%) of the tax at 4% is earmarked for revenue sharing. In addition, a portion of the sales tax on motor fuel and other automotive products is statutorily earmarked to the Comprehensive Transportation Fund for public transportation programs. The balance of sales tax is credited to the state General Fund.
How Tax is Collected – Although the retail price paid at the pump includes federal and state excise taxes, as well as the state sales tax, those taxes are not actually collected from the retailer, (i.e. service station). The excise taxes are actually collected by the Michigan Department of Treasury from fuel suppliers as defined in the Motor Fuel Tax Act. The change in the tax collection point from the retailer to the supplier was effected for the gasoline tax by Public Act 225 of 1992. The change for diesel taxes was made in part by PA 225 of 1992, and completed through Public Act 668 of 2002.
Note that the Motor Fuel Tax Act allows suppliers to deduct 1.5% of the gasoline quantity from taxation to allow for the cost of remitting the tax. This tax expenditure equates to approximately $14 million. The deduction had been 2% of the gasoline quantity prior to the enactment of Public Act 83 of 1997 (the act that increased the gasoline excise tax from 15 cents per gallon to 19 cents). Prior to 1997 amendment, this deduction had been described in the Motor Fuel Tax Act as an "evaporation and loss allowance."
With regard to the sales tax, the Michigan Department of Treasury sets a prepaid gasoline sales tax rate. This tax is collected from the gasoline refiner or importer at the time fuel is sold to a wholesaler. As a result, the sales tax is included in the price paid by the wholesaler and, in turn, the retail service station. The retailer is credited for the amount of prepaid sales tax at the time he or she prepares a monthly sales tax report. If the retailer had effectively prepaid $10,000 in sales tax, as included in the price charged by the wholesaler, and the retailer’s total tax liability for the month was $11,000, the retailer would remit only the $1,000 balance to the Department of Treasury.