Michigan Begins New Inflation-Adjusted Gas Taxes to Fund Roadbuilding
The state dropped its 6% gas sales tax and increased its motor fuel tax from 31 to 52.4 cents per gallon.
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Michigan drivers are encountering a new gas tax structure at the pump this year – including an adjustment accounting for inflation – as part of an effort to secure billions in roadbuilding funds in the coming years.
Prior to January 1, 2026, drivers paid a 6% sales tax on fuel and a 31-cents-per-gallon motor fuel tax at the pump. Starting this year, the sales tax on fuel has been removed, and the motor fuel tax will be raised to 52.4 cents per gallon, a move expected to generate $1 billion annually, according to a press release from Governor Gretchen Whitmer.
The new gas tax structure got the green light in Michigan’s 2026 fiscal year budget.
“And by replacing the sales tax on gas – where Michigan was an outlier among other states – and replacing it with gas tax constitutionally dedicated to roads, we now have all state taxes paid at the pump going to roads,” said Denise Donohue, CEO of Michigan County Road Association.
The state says this will not result in a price increase but will simplify its tax system by "swapping a volatile tax calculation for a predictable one."
The resulting gas tax revenue will be sent primarily to the Michigan Transportation Fund, with 34.4% going to state highways, 34.4% to county roads, 19.2% to cities and villages, and 9.8% to the public transit fund. The remaining 2% has been allotted to the state’s Recreation Improvement Account.
State legislation specified that the tax would consist of a base rate of 51 cents per gallons and an adjustment that multiplies the base rate by 1 plus the lesser of 5% or the inflation rate, then round up to the nearest one-tenth of a cent.
