Michigan’s latest infrastructure funding review places it among the few states that direct every dollar paid at the pump exclusively to transportation.
Gov. Gretchen Whitmer (D) signed a four-bill package in early October, now Public Acts 17-20, 2025, that replaces the state’s 6 percent sales tax on motor fuel with an excise tax indexed to inflation.
Effective Jan. 1, the rate increases from 31¢ to 51¢, indexed to inflation, and ends the diversion of fuel sales tax revenue to schools and local revenue sharing.
Under the new structure, all revenue will go through the Michigan Transportation Fund and related subaccounts managed by the Michigan Department of Transportation, counties and municipalities for road, bridge and transit work.
“Every penny you pay at the pump will go back into Michigan’s roads and bridges,” Whitmer said in a statement when he signed the measures on Oct. 7.
Legislative and fiscal details
The key statutory pivot is found in Public Act 18 of 2025, which eliminates the 6% fuel-related sales and use taxes applied to interstate carriers and redefines “motor fuel” under the Fuel Tax Act.
The Act’s Enactment Clause tied its effectiveness to three complementary measures that repealed the sales tax on retail fuel sales, eliminated the use tax on motor and aviation fuels, and increased the special tax per gallon to 51¢ with annual inflation indexing, conditions that were met after the legislative package was signed.
According to an October 2025 analysis by accounting firm BDO USA, the legislation also establishes transitional requirements for licensed fuel suppliers and importers.
They must now calculate and remit the rate differential between the old 31¢ and the new 51¢ per gallon by Feb. 20, 2026. BDO described the measures as “one of the most comprehensive overhauls of Michigan’s tax system in decades” and advised fuel tax filers to review internal processes to avoid overpayment.
Collectively, the legislative package stabilizes transportation funding and aligns Michigan’s fuel tax structure with the International Fuel Tax Agreement, which most states use for truck fuel tax reporting, supporters say.
A campaign image of Michigan Gov. Gretchen Whitmer’s “Finish the Job” road infrastructure message, which reinforces her longtime promise to prioritize investment in roads and bridges, a central issue in the state’s new fuel tax overhaul.
Image courtesy of the Democratic Governors Association
Whitmer’s signing marks the political culmination of nearly a decade. His 2018 campaign slogan, “Fix the damn roads,” appealed to voters frustrated by deteriorating pavement and years of gridlock.
Re-elected in 2022, she expanded the Rebuilding Michigan bond program and pushed for a permanent, inflation-linked revenue mechanism to close maintenance backlogs.
The new package makes good on that promise by building road repair into the state’s tax code instead of relying on short-term credits or loans.
According to the Michigan Department of Treasury’s Division of Grants and Revenue Sharing, the fiscal realignment comes alongside modest municipal funding adjustments enacted under Public Act 22 of 2025.
Its FY 2025 and FY 2026 projected revenue sharing tables, reviewed by ENR, show slight overall declines (typically 1.7 percent to 2.0 percent) in formula-based payments to counties and cities, indicating that the excise tax revenue stream will supplement existing local funding channels.
Treasury data confirms that FY 2026 appropriations continue to be governed by Act 51 formulas for taxable value, weighted population and yield, indicating that the new special receipts will bolster the Michigan Transportation Fund rather than redistribute existing revenues.
While administration and local officials have generally supported the change, education groups have expressed concern about redirecting fuel sales tax revenue that previously supported K-12 schools.
“Michigan students cannot afford to sacrifice their education to pave our roads,” the Michigan Education Association and allied groups said in a joint memo to lawmakers ahead of the vote.
About 60 percent of the new fuel tax revenue is expected to fund projects managed by the state through the state DOT, with the remaining 40 percent distributed to county and municipal highway agencies based on Act 51 formulas.
Whitmer’s office anticipates the change will generate about $2 billion annually in new funding for transportation once fully implemented, roughly doubling the annual capital available to the DOT and local highway agencies.
Market perspectives
The Michigan County Highway Association and local agencies expect higher rental volumes beginning in the 2027 fiscal capital cycle, when the first full year of excise tax revenue will flow into the Michigan Transportation Fund.
Contractors should anticipate an increase in repaving, reconstruction and bridge work across the state as the Michigan DOT accelerates deferred maintenance and resumes several multi-year corridor programs halted since 2020.
Projected annual transportation revenue under Michigan’s fuel tax overhaul. The baseline reflects fiscal year 2024-2025 (~$3.9 billion) Michigan Transportation Fund revenues from the Department of the Treasury and Michigan House Fiscal Agency; “after reform” adds the governor’s estimated $2 billion in new revenue from the 51¢ per gallon indexed excise tax. All figures are nominal estimates and exclude future inflation adjustments.
Chart by ENR/Sources: MDOT Receipts and Distributions (FY 2025); Fiscal reports from the House Fiscal Agency (February 2025)
Michigan DOT, which manages more than 10,000 core miles of state highways, is also expected to expand CM/GC design-build and delivery methods to accelerate project delivery under its Rebuilding Michigan initiative.
Officials see potential benefits in secondary and gravel road improvements, long underfunded in previous budgets.
Dennis Kolar, CEO of the Oakland County Road Commission, one of the wealthiest counties in the state, is optimistic about the new revenue-generating plan.
“We were at a critical point, and the legislature and the governor came through,” he said. “We know it’s never easy for the Legislature to raise revenue for any need, and we’re grateful that lawmakers were able to put aside partisan differences and come together to make this package possible.”
State Senate Majority Leader Winnie Brinks (D-Grand Rapids) said Michiganders deserve a budget that improves their lives, including improved roads.
“The framework we’ve agreed upon reflects the priorities of Michigan residents across all regions, and while no budget will be a perfect product, I’m confident that the end result … will have features that benefit all residents,” he said in a statement before the legislative package was signed.
At the federal level, excise taxes on gasoline and diesel, unchanged since 1993 at 18.4 and 24.4 cents per gallon, respectively, flow into the Highway Trust Fund. Michigan’s approach now mirrors that structure, but by tying rates to inflation, it allows for regular adjustments.
State Treasury officials will finalize rulemaking in early 2026 to implement quarterly inflation adjustments and revise reporting protocols for interstate distributors and carriers.
The state DOT plans to release updated Michigan Transportation Fund projections for fiscal year 2026-2027 in the spring budget cycle, identifying priority corridors and bridge packages eligible for the new funding stream.
“We were encouraged to see that the governor’s transportation funding proposal included a net increase of $250 million for public transit … We look forward to continuing negotiations on transportation funding,” said Ross Gavin, director of transportation and urban land use policy for the Michigan Environmental Council.
