Michigan Set to Increase Per-Gallon Gas Tax by 21 Cents on January 1, 2026, as State Eliminates 6% Sales Tax on Fuel

MICHIGAN — Drivers across Michigan will see a major change in how gasoline is taxed beginning January 1, 2026, as the state eliminates its 6 percent sales tax on fuel and replaces it with a higher per-gallon tax aimed at funding road and bridge improvements. The new structure increases the per-gallon gas tax from about 31 cents to roughly 52 cents, a total jump of 21 cents according to the Michigan Department of Treasury.

State officials say the shift is intended to create a more stable and predictable revenue source for infrastructure repairs, since the previous sales-tax-based system fluctuated with gas prices. The updated tax structure will make Michigan’s fuel tax one of the higher rates in the region, though officials argue it will generate long-term benefits for highways and local roads.

State to Replace 6% Sales Tax With Per-Gallon Fuel Tax

Under the previous system, Michigan applied a 6 percent sales tax to gasoline purchases. This meant a driver paid more or less in taxes depending on the price of fuel. At a gas price of $3.50 per gallon, the sales tax equaled about 21 cents per gallon — which is why state officials selected 21 cents as the replacement amount for the new flat tax.

By moving to a fixed per-gallon tax, the state aims to reduce volatility in its transportation revenue. Infrastructure advocates have long argued that sales-tax-based fuel revenue was unpredictable and made long-range planning more difficult, especially during periods of sharp swings in oil prices. Michigan’s new system ties revenue directly to fuel consumption rather than price, a structure many states already use.

How Drivers Will Be Affected Under the New Tax System

The impact of the change depends heavily on the price of gasoline. State officials outlined the following scenarios to help drivers understand what the switch means:

• When gas prices are below $3.50 per gallon, drivers will now pay more in taxes per gallon than under the previous sales tax.
• When gas prices are above $3.50 per gallon, drivers will pay less in taxes per gallon than they would have under the sales-tax structure.
• At $3.50 per gallon, drivers will pay roughly the same under either system.

Because gas prices fluctuate daily, Michigan drivers may see varying impacts month to month. Gas stations are not required to change pump prices immediately on January 1, as the market will still depend on supply, demand, and oil production costs.

Annual Inflation Adjustment Begins in 2026

Beginning in 2026, Michigan’s fuel tax will also be adjusted annually for inflation. State officials say this measure will help maintain consistent funding levels for transportation projects as construction costs increase over time.

Inflation indexing is an approach some states have adopted to prevent fuel tax revenue from losing value over the years. While supporters say the adjustment will create long-term stability, critics argue it may place additional pressure on households already struggling with high transportation expenses.

Economic analysts predict the inflation-adjusted fuel tax could result in incremental increases each year, though the exact rate will depend on national economic conditions.

Infrastructure Funding to Benefit From Higher Tax Revenue

Michigan’s Department of Treasury says the switch to a per-gallon tax will help fund critical upgrades to highways, bridges, and local road systems across the state. The added revenue may support resurfacing projects, bridge maintenance, and improvements to transportation corridors that have suffered from years of wear and severe weather.

As Michigan prepares for the January 1 transition, NapervilleLocal.com will continue monitoring updates, public responses, and long-term impacts of the new fuel tax structure. Check back for more coverage on how the policy affects drivers, communities, and statewide transportation funding.