Mich. May Replace Per-Gallon Tax with Wholesale Levies on Fuels

This story appears in the June 2 print edition of Transport Topics.

Michigan state senators are still attempting to hammer out a transportation funding plan that would replace the state’s per-gallon tax on diesel and gasoline with a wholesale sales tax on fuel.

The Senate last week was still looking at several measures to generate money for transportation, including a proposed wholesale sales tax at 9%.

The House passed a funding package, voting during May to set the proposed wholesale tax at 6% for diesel and gasoline, and to index the tax to inflation. It would generate an estimated $400 million more a year for transportation.

Michigan also applies its general state sales tax of 6% to fuel purchases, which increases the amount of tax paid at the pump. The House bill would direct 2 cents of the 6 cents generated by the general sales tax on retail fuel purchases to transportation.

The Senate has not yet acted on that bill.

One thing the lawmakers seem to agree on is that “they want to eliminate the differential between gas and diesel taxes,” said Walter Heinritzi, executive director of the Michigan Trucking Association.

Currently, the diesel tax is 19 cents per gallon, and the gasoline tax is 15 cents.

Michigan truckers generally support the House funding package, which includes some higher permit fees for truckers, Heinritzi said.

“What they’re talking about is higher fees for permits for nonconforming loads,” he said, referring to overweight and oversize loads.

However, Robert McCann, press secretary to the Senate Democratic minority, said some Senate proposals do not contain the new permit fees.

That’s a stumbling block for those Democrats who want the trucking industry to pay more in exchange for higher weight on highways and wholesale fuel taxes that would be passed on to the public by the fuel dealers, he said.

“If you’re a minimum-wage worker [who’s] driving 20 miles to work every day, you’re going to feel the impact of filling up your car at the pump more than anyone else is,” McCann said.

He also said lawmakers hope to have a plan in place by the time they take their summer vacation, starting June 12.

But Heinritzi said it’s possible a final vote on a plan may not happen until after the November election because, if the Senate amends the House measure, the resulting bill would have to go to a House-Senate conference committee to work out the differences.

Michigan lawmakers and Gov. Rick Snyder (R) have been trying for four years to reach agreement on a funding plan.

After the House approved its funding package, Snyder said the plan “reflects a serious commitment to tackling” the deteriorating conditions of Michigan’s roads.

“It continues the critical dialogue as we work together to reach the ultimate solution that includes a stable, sufficient, long-term funding source,” Snyder said in a statement.

But State Sen. Mike Kowall (R) told Transport Topics the state needs at least $1.2 billion more a year than the House’s $400 million just to maintain its badly deteriorated road system.

“We’re hitting critical mass here as far as the roads,” he said. “This winter did not help them at all.”

The governor also has said he wants to hit that $1.2 billion target.

Senate Majority Leader Randy Richardville (R) has proposed raising as much as $1.6 billion more per year by increasing the wholesale sales tax on fuel to 9%. His bill would continue to increase the tax until it reaches 15.5% by 2018.

Kowall said that he supports the repeal of the per-gallon fuel taxes in favor of an indexed wholesale sales tax because the sales tax would “float” with the cost of fuel, generating more revenue when fuel prices go up, less when fuel prices drop.

“This way, yes, it will be a little more money for the consumer, but that money will go directly into repair and maintenance on the roads,” said Kowall, vice chairman of the Senate Transportation Policy Committee.

Kowall said more conservative members of the Republican Party, which controls both legislative chambers, are opposed to any tax changes but that constituents are telling lawmakers to do something to fix the roads.

Democratic spokesman McCann said: “That still remains the major challenge — the public wants to see the roads fixed, but they don’t necessarily want to pay for it.”