Michigan Fuel Tax Rates, Refunds, and Exemptions
Understand the financial structure of Michigan's motor fuel tax, from how it's calculated to the process for recovering taxes on non-highway use.
Michigan’s fuel tax is a state excise tax applied to the sale and use of motor fuels within its borders. This levy is a primary funding mechanism for the state’s transportation network, with revenue collected to pay for the maintenance, repair, and construction of roads and bridges. It functions as a user fee, where those who use the public road system contribute directly to its upkeep through the fuel they consume.
Current Fuel Tax Rates
As of January 1, 2025, the state excise tax rate is 31 cents per gallon for both gasoline and diesel fuel. This rate is subject to an annual inflation adjustment. However, proposed legislation, if enacted, would increase the rate to 51 cents per gallon starting October 1, 2025, while also exempting motor fuel from the state’s 6% sales tax.
Under the current system, Michigan also applies its 6% sales tax to motor fuel purchases. This sales tax is calculated on the total selling price, which includes the excise tax itself, creating a tax-on-tax scenario. For example, if the pre-tax cost of a gallon of gasoline plus the 31-cent excise tax is $3.31, the 6% sales tax would be calculated on this amount, adding approximately 20 cents to the final price.
The combination of the flat-rate excise tax and the percentage-based sales tax means the total tax amount per gallon fluctuates with the underlying price of fuel. While the excise tax remains a fixed amount, the sales tax portion rises and falls with wholesale price changes.
How Fuel Tax Revenue is Used
Revenue generated from the state motor fuel tax is constitutionally restricted for transportation purposes. All collections are deposited into a single dedicated fund, the Michigan Transportation Fund (MTF). The distribution of money from the MTF is governed by a formula established in Public Act 51.
After certain administrative costs and statewide programs are funded, the remaining balance is allocated between state and local authorities. The Michigan Department of Transportation (MDOT) receives a share to manage and maintain state highways, while the remaining funds are distributed to county road commissions and incorporated cities and villages to support their local road systems.
Common uses include repaving roads, repairing or replacing bridges, winter maintenance like snow plowing, and covering the costs of traffic signal operations. A portion of the revenue is also directed to support public transportation systems, including operating assistance for local bus agencies.
Available Fuel Tax Exemptions and Refunds
Certain individuals and organizations can receive a refund for the excise tax paid on fuel used for specific non-taxable purposes. The most common exemptions apply to fuel consumed in a manner other than propelling a vehicle on public highways. This includes gasoline or diesel used for agricultural purposes, such as operating tractors and other machinery on a farm. Fuel used in stationary engines, commercial marine vessels, and by government entities in their vehicles is also eligible for a refund.
To claim a refund, the state requires original, unaltered invoices from the fuel seller for all purchases. These receipts must clearly show the number of gallons purchased and the amount of Michigan fuel tax paid. For fuel used in non-highway equipment, users must maintain logs that document how many gallons were dispensed into the exempt machinery versus licensed vehicles.
The primary document for requesting a refund is the Michigan Department of Treasury’s Form 680, Claim for Refund of Motor Fuel Tax. The claimant must calculate the total gallons purchased and the corresponding tax paid, attaching the original invoices as proof. The form includes a statement that the claim is made under penalty of perjury, affirming that the information is accurate.
The Refund Claim Process
The completed and signed Claim for Refund of Motor Fuel Tax form, along with all supporting documentation, must be submitted to the Michigan Department of Treasury. Claimants must file their request within 18 months from the date the fuel was purchased, as claims submitted after this deadline will be denied. The package should be mailed to the Motor Fuel Unit address specified on the form.
The Department of Treasury may investigate a claim before issuing a payment and has up to four years from the date of issuance to audit a refund that has already been paid. The processing time can vary but generally takes several weeks, and claimants should retain copies of all submitted documents for their records.
Business Reporting and Remittance
The legal responsibility for collecting and remitting Michigan’s motor fuel excise tax falls on licensed fuel suppliers. The tax is imposed when the supplier removes fuel from a distribution terminal, known as the “terminal rack.” The supplier includes the tax in the price charged to the wholesaler or jobber who purchases the fuel.
These licensed suppliers are required to file a monthly motor fuel tax return with the Michigan Department of Treasury, by the 20th day of the month following the reporting period. The return details the total gallons of fuel removed from the terminal and calculates the tax due. The state may require payment to be made via an electronic funds transfer.
To help offset the administrative burden, suppliers are permitted to retain a small portion of the tax they collect. The law allows a supplier to deduct 1.5% of the tax due on gasoline to cover their remittance costs. The supplier is required to pass this allowance on to subsequent purchasers, with a portion ultimately credited to the retailer who makes the final sale to the consumer.