Michigan Redirected Fuel Taxes to Roads. Some of the Money Still Goes Somewhere Else.

When Michigan drivers pay tax at the pump, how much of that money should reach the roads?

For years, gasoline carried both a per-gallon fuel tax and Michigan’s regular 6% sales tax. The fuel tax was dedicated to transportation. The sales-tax revenue also supported schools, local revenue sharing, and other state purposes.

Michigan’s 2025 road package changed that structure.

House Bills 4180 and 4182 remove motor fuel from the sales tax and its companion use tax. Senate Bill 578 determines where much of the package’s road money goes.

The result is more honest about the destination of fuel taxes. It is also more complicated than “gas taxes now fix roads.”

HB4180, now Public Act 17, removed the sales tax from eligible motor fuel beginning January 1, 2026.

HB4182, now Public Act 19, made the matching change to the use tax. The use tax generally covers items purchased outside Michigan and brought into the state. Exempting fuel from both taxes closes the route that could have taxed an out-of-state fuel purchase after the in-state sales-tax exemption took effect.

This was a tax restructuring rather than a simple tax cut. Another law in the larger package, HB4183, raised the road-dedicated motor-fuel tax as the sales and use taxes came off fuel.

Schools were protected from the loss of fuel-related sales and use tax revenue. HB4180 and HB4182 require the state to replace that lost School Aid Fund money from other collections.

That protection keeps the road package from creating an immediate hole in school funding. It also creates a continuing claim on the rest of the state budget. The backfill has no sunset.

SB0578, now Public Act 16, creates the Neighborhood Roads Fund and writes the distribution formula.

For fiscal years 2026 through 2030, the first allocations include:

1. $100 million for closed, restricted, or critical bridges. 2. $40 million for grade-separation projects, such as separating a road from a railroad crossing. 3. A $100 million tranche split between public transit and a new Infrastructure Projects Authority Fund. Public transit receives 35%. The new authority fund receives 65%.

After those allocations, 80% of the remaining money goes to local road agencies and 20% goes to the State Trunk Line Fund. Within the local share, 65% goes to county road commissions and 35% goes to cities and villages.

That sends substantial money to bridges and neighborhood roads. It also establishes permanent channels for transit and broader mobility projects inside a package sold around road repair.

The formula changes again beginning in fiscal year 2031. The fixed amounts shrink, and public transit receives a larger share of its combined tranche with the authority fund.

The Infrastructure Projects Authority Fund is administered by the Michigan Department of Transportation. It is non-lapsing, which means unused money remains in the fund instead of expiring at the end of the budget year.

Up to 20% may support supplemental transit operating grants. The rest may finance “qualified investments” in high-capacity, multimodal, and regional mobility projects.

The law gives MDOT selection criteria and requires annual reporting to the governor and Legislature. Those are meaningful accountability measures.

The fund still gives the department discretion over which projects receive money. Local recipients are not required to provide matching funds, so a community can receive state transportation money without contributing a required local share.

That is the part to watch. A bridge that is closed or weight-restricted presents a visible need. A broad mobility fund asks taxpayers to trust administrative project selection over time.

Michigan made a defensible change by directing fuel taxation toward transportation and protecting schools during the shift. The package also embedded public-transit spending, a non-lapsing discretionary fund, and no local-match requirement in the new structure.

Calling it road funding does not settle where the money goes. The formula does.

This is our read of the laws. We encourage you to read them yourself and reach your own conclusions.