Regan Brown
In Michigan, fuel vendors are responsible for paying excise taxes on fuel, which are then passed on to consumers through the fuel's retail price. The state imposes a tax on gasoline, diesel/kerosene, compressed natural gas, and aviation fuel. These taxes are based on energy content relative to gasoline and include a 0.1 cents per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST). Federal motor fuel excise taxes are also included in the price of motor fuel sold in Michigan, collected by the IRS to support the Federal Highway Administration.
| Characteristics | Values |
|---|---|
| Tax on gasoline | Yes |
| Tax on other fuel types | Yes, including diesel/kerosene, compressed natural gas, and aviation fuel |
| Excise tax on aviation fuel | $0.03 |
| Payment made by | Fuel vendors |
| Tax passed on in the fuel's retail price | Yes |
| LPG tax due date | 20th of April, July, October, and January (quarterly) |
| Motor fuel suppliers' LPG tax due date | 20th of each month |
| Federal excise taxes | Included in the price of all motor fuel sold in Michigan |
| Federal excise tax collection | IRS, to support the Federal Highway Administration |
| Leaking Underground Storage Tank Trust Fund (LUST) charge | 0.1 ¢ per gallon |
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What You'll Learn
Excise taxes on gasoline, diesel, kerosene, and aviation fuel
In Michigan, fuel vendors are responsible for paying excise taxes on gasoline, diesel, kerosene, and aviation fuel. While the taxes are paid by vendors, they are typically passed on to consumers in the retail price of the fuel.
Aviation fuel is subject to a state excise tax of $0.03 per gallon in Michigan. This tax is included in the retail price of aviation fuel purchased in the state.
Undyed diesel fuel is subject to the state's motor fuel tax. Since January 1, 2017, any sale of undyed diesel fuel has been taxable unless specifically exempted by the act. Retail dealers of undyed K-1 kerosene are not eligible for tax refunds.
Kerosene is also considered a type of diesel fuel under the Motor Fuel Tax Act. The sale of undyed kerosene is taxable unless specifically exempted. Customers who purchase undyed kerosene for non-highway purposes may apply for a refund from the Special Taxes Division, Statutory Refund Unit.
In addition to state excise taxes, the price of motor fuel in Michigan includes federal motor fuel excise taxes. These taxes are collected by the IRS and support the Federal Highway Administration. Federal excise tax rates vary for different types of motor fuel, including gasoline, diesel/kerosene, and compressed natural gas.
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Federal motor fuel excise taxes
In Michigan, the price of motor fuel includes federal motor fuel excise taxes, which are collected from the manufacturer by the IRS. These taxes are used to support the Federal Highway Administration. The federal excise tax rates on various motor fuel products include a 0.1 ¢ per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST). These tax rates are based on energy content relative to gasoline. In most areas, state and federal excise taxes amount to about 13% of the cost of a gallon of gas.
Excise taxes on fuel are implemented by every state, and in Michigan, these taxes are paid by fuel vendors and passed on in the fuel's retail price. Aviation Fuel is subject to a state excise tax of $0.03. LPG tax is due on the 20th of April, July, October, and January (quarterly tax), except for motor fuel suppliers, who must pay on the 20th of each month. Fuel producers and vendors in Michigan are responsible for filing various fuel tax reports with the state government.
The Michigan Legislature has outlined specific regulations regarding motor fuel taxation. For instance, tax is imposed on net gallons of motor fuel, including transmix, that are lost or unaccounted for at terminals in the state. Additionally, bills of lading and invoices must identify the blended product and the correct fuel product code, with the motor fuel tax rate listed separately for each invoice. Facilities that produce and distribute motor fuel from a rack are considered terminals and must obtain a terminal operator license, complying with reporting requirements.
As of January 1, 2022, an Inflation-Adjusted Fuel Tax Act came into effect, impacting IFTA motor carriers. This act likely influences the federal motor fuel excise taxes applied in Michigan, although specific details about the impact were not readily available.
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Leaking Underground Storage Tank Trust Fund charge
In 1986, the Leaking Underground Storage Tank Trust Fund (LUST) was created by Congress to address petroleum leaks from federally regulated underground storage tanks. This was done by amending Subtitle I of the Solid Waste Disposal Act. The LUST Trust Fund is financed by a 0.1-cent tax on each gallon of motor fuel sold across the United States. This money is used to:
- Oversee cleanups of petroleum releases by responsible parties
- Pay for cleanups at sites where the owner or operator is unknown, unwilling, or unable to respond, or which require emergency action
- Conduct inspections and other release prevention activities
In order to receive money from the Trust Fund, a state, territory, or tribe must enter into an assistance agreement with the federal government to spend the money for its intended purpose. States and tribes use LUST Trust Fund cleanup money to:
- Oversee corrective actions by responsible parties
- Clean up sites that require prompt action to protect human health and the environment and/or where the responsible party is unknown, unwilling or unable to perform the cleanup
In Michigan, the EGLE's Water Well Viewer (WWV) is an interactive mapping system that displays information on underground storage tanks and sites of environmental contamination. The state has also introduced a new program to improve its cleanup efforts for leaking underground storage tanks, with a focus on sustainable solutions that benefit local communities.
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Tax paid by vendors, passed on to retail price
In Michigan, the state imposes a specific tax on gasoline and diesel fuel, which is included in the retail price that consumers pay at the pump. The tax rates are currently set at 16.4 cents per gallon for gasoline and 18.1 cents per gallon for diesel fuel.
These taxes are an essential source of revenue for the state and are used to fund various infrastructure projects, including the construction and maintenance of roads, bridges, and other transportation-related initiatives. The taxes also contribute to the general fund, which supports essential public services such as education, healthcare, and public safety.
While the state sets the tax rates, it is the vendors or suppliers who are responsible for paying the fuel tax to the government. However, this does not mean that vendors bear the financial burden of the tax. In most cases, vendors pass on the cost of the tax to their customers by including it in the retail price of the fuel.
This pass-through of the tax amount ensures that vendors can continue operating profitably while still complying with their tax obligations. Ultimately, it is the end consumer who bears the cost of the fuel tax, as it is reflected in the price they pay at the pump. This indirect method of taxation allows for a more efficient collection process, as the state collects the tax revenue from a smaller number of vendors rather than a large number of individual consumers.
It is worth noting that fuel prices can fluctuate due to various factors, including changes in crude oil prices, seasonal demand, and market conditions. Vendors may adjust their retail prices accordingly, but the fuel tax amount remains constant, continuing to be passed on to consumers as part of the final price they pay for gasoline or diesel fuel in Michigan.
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Tax on net gallons of motor fuel lost/unaccounted for
Michigan's fuel tax laws impose a tax on net gallons of motor fuel, including transmix, that are lost or unaccounted for at each terminal in the state. This tax is calculated based on the number of net gallons of motor fuel that go missing or are unaccounted for beyond a certain threshold. Specifically, the law states that the tax applies to the net gallons of motor fuel lost or unaccounted for that exceed 0.5% (or one-half of one percent) of all net gallons of fuel removed from the terminal across the rack or in bulk.
The tax rate for motor fuel in Michigan has changed over time. From before January 1, 2017, the tax rate was 19 cents per gallon on gasoline and 15 cents per gallon on diesel fuel. From January 1, 2017, to September 30, 2025, the tax rate increased to 26.3 cents per gallon for both gasoline and diesel fuel. Beginning on October 1, 2025, the tax rate will further increase to 51 cents per gallon for both gasoline and diesel fuel.
Additionally, starting from January 1, 2022, and each subsequent year, the Michigan Department of Treasury will determine a cents-per-gallon rate for motor fuel. This rate will be calculated by multiplying the previous year's rate by 1 plus the lesser of 0.05 or the inflation rate, and then rounding the result up to the nearest one-tenth of a cent. This formula ensures that the tax rate adjusts with inflation while also allowing for incremental increases.
The tax on lost or unaccounted-for motor fuel is intended to ensure that those who operate motor vehicles on Michigan's public roads and highways contribute to the maintenance and improvement of the state's transportation infrastructure. Furthermore, it encourages fuel suppliers to carefully manage and account for their fuel inventories to minimise losses and the resulting tax liabilities.
While the tax on lost or unaccounted-for motor fuel is an important component of Michigan's fuel tax system, it is just one aspect of the state's comprehensive approach to fuel taxation. Other factors, such as the type of fuel, the manner of distribution, and the intended use, also play a role in determining the overall tax liability for motor fuel in Michigan.
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Frequently asked questions
In Michigan, the primary excise tax on fuel is on gasoline. State and federal excise taxes amount to about 13% of the cost of a gallon of gas.
Payments of fuel excise taxes are made by fuel vendors and are passed on in the fuel's retail price.
The fuel tax rates in Michigan include a 0.1 cents per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST).
