Michigan residents on May 5 will vote on a constitutional amendment and a package of bills that will go into effect if approved. The proposal will increase the sales tax from 6 percent to 7 percent, raise taxes on fuel, and increase vehicle registration taxes. It will also hike the state’s Earned Income Tax Credit.
Overall, the proposal will increase state tax revenue for fiscal year 2015-2016 by approximately $2 billion, of which $1.3 billion will go to funding transportation — initially to accelerate repayment of existing transportation bond debt, to increase overall road maintenance, and to spend more on transit and recreational grants.
Of the additional $700 million in new tax revenue, $300 million would go to public schools, $100 million to local government revenue sharing, and pledges for future spending on local bus and transit agencies.
The increase in the EITC will cost the state budget a further $260 million.
Tax and fee changes:
The proposal raises the state’s sales and use taxes from 6 percent to 7 percent, a 17 percent increase in the rate. This would give Michigan the second-highest state sales tax in the nation, though other states allow local governments to also levy their own sales taxes. Increasing sales and use tax rates would bring the state government an extra $1.4 billion.
The state currently imposes both sales tax and a per-gallon excise tax on motor fuel. This excise tax along with vehicle license and registration fees are the primary source of revenue for the state’s road maintenance budget. Under the measure, sales tax would no longer be imposed on fuel and the motor fuel tax would be replaced with a new wholesale tax levied at higher rates than currently.
At a listed price of $2 per gallon, the state is currently collecting 29 cents per gallon in sales and excise taxes on gasoline. This proposal would increase those collections to 41.7 cents per gallon.
Registration fees for commercial trucks that weigh more than 26,000 pounds will be increased on a sliding scale based on the truck’s weight.
Currently, the state provides relief from registration taxes as vehicles age. The annual tax is originally based on on the vehicle’s list price but is discounted at the first, second and third renewals. This package phases out these discounts on newer vehicles. Electric vehicles will also be subject to higher registration fees.
The change is not expected to raise much revenue in the first few years but will eventually collect $150 million annually when discounts no longer apply.