Bill
HB 4180
Starting Jan 1, 2026, Michigan exempts eligible motor fuels from state sales tax, with transitional prepayment rules and offsets via a road-funding package.
Status & timeline
- Enacted: Public Act 17 of 2025; approved by Governor October 7, 2025; bill assigned immediate effect on enactment.
- Effective dates:
- General enactment: October 7, 2025 (PA effective date).
- Sales/use tax exemption for eligible fuels: begins January 1, 2026 (Sec. 4gg as enacted).
- Prepayment and related transitional provisions apply through December 31, 2025.
Purpose and intent
- Remove motor fuel (and certain related fuels) from Michigan’s state sales and use taxes starting Jan 1, 2026, while preserving designated school funding and providing transitional rules for tax prepayments and administration.
Key provisions
- Adds Sec. 4gg to the General Sales Tax Act (MCL 205.54 series):
- Beginning Jan 1, 2026, “eligible fuel” is exempt from the state sales tax.
- “Eligible fuel” is defined to include motor fuel, alternative fuel, and leaded racing fuel, with specific exclusions (see below).
- Exclusions from the exemption include:
- Motor fuel sold for aircraft use when the aeronautics privilege tax (MCL 259.203) was paid and purchaser is registered under the Motor Fuel Tax Act.
- Aviation fuel on which the aeronautics privilege tax is due.
- Motor/alternative fuel sold for residential, commercial, or industrial heating, cooling, or ventilation (including fuels already exempt under the additional 2% sales tax approved in 1994).
- Liquified petroleum gas (LPG), unless it qualifies as “used” fuel under Motor Fuel Tax Act definitions.
- Amends Sec. 6a (MCL 205.56a) — transitional/prepayment rules:
- Preserves and extends existing prepayment mechanics for sales tax on fuel through Dec 31, 2025, including monthly determination/publication of prepayment rates and remittance schedules for refiners/terminals.
- Clarifies reporting/payment timelines for inventory held when the new rules take effect.
- Hold‑harmless for School Aid Fund (package context): as enrolled in the broader road‑funding package, related bills require deposits to the School Aid Fund equal to sales/use tax revenue lost to these fuel exemptions (implemented as part of the enacted package of tied bills).
Relationship to other legislation
- Tie‑barred to a multi‑bill road‑funding package (HB 4181, HB 4182, HB 4183, and SB 578, among others). The full package reallocates and increases motor fuel taxes, creates the Neighborhood Road Fund, and adjusts various revenue distributions that offset impacts of the sales/use tax change.
Who is affected
- Consumers & retailers: retail sales of eligible motor fuels will no longer be subject to state sales/use tax as of Jan 1, 2026.
- Fuel industry: refiners/terminals and distributors must follow transitional prepayment/remittance and reporting rules through Dec 31, 2025.
- Aviation sector: aviation fuels remain subject to aeronautics taxes; beneficiaries of existing aviation-related distributions may see changes tied to other package provisions.
- State funds: alters revenue flows — sales/use tax receipts from motor fuels decline, but the broader tied package offsets some effects by increasing motor fuel excise taxes and creating transportation earmarks; School Aid Fund is preserved via hold‑harmless deposits in the enacted package.
Fiscal impact (summary)
- As part of the larger enacted transportation/road‑funding package, the state and local fiscal picture was rebalanced through tax increases, transfers, and new earmarks. HFA analyses of the package show substantial interfund transfers (reductions in General Fund and some revenue sharing, increases in transportation funds). Isolated, sales/use tax on motor fuel previously generated hundreds of millions annually (sales tax on motor fuel ≈ $900M in FY 2023–24); the enacted package reallocates revenues so School Aid Fund is held harmless.
Administration
- Department of Treasury required to continue monthly prepayment calculations and publish rates through Dec 2025; fuel suppliers/refiners follow specified remittance schedules; reporting requirements for inventory subject to transitional taxes are specified.
For more detail
- Enrolled bill text amending MCL 205.56a and 205.75 and adding 205.54gg (Sec. 4gg) contains the statutory definitions, exclusions, and prepayment language. The bill was enacted as part of a multi‑bill transportation funding package; consult the House Fiscal Agency analyses for comprehensive fiscal and distribution tables.
Compiled from official sources — confirm details with the bill’s official record.
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