Sales Tax Retention on Off-Road Fuel Will Trigger Pandemonium in Michigan's Fuel Distribution Network

Part I

Let’s walk through the numbers and consequences of the most disastrous aspect of Proposal 2015-01: the retention of the sales tax on fuels used almost everywhere but on the roads. Most disastrous because this will be enshrined in our Constitution if Proposal 2015-01 passes. No act of our Legislature or sleight of hand by our Governor can correct the Michigan Constitution if Proposal 2015-01 passes. They can only decide to impose astronomical costs on the petroleum distribution network, create a lot of new criminals, spawn a black market in fuels, forego sales tax revenues, or some combination thereof. The Michigan Constitution gets its first intractable dilemma.

HCJR UU contains the actual language amending the Michigan Constitution. Sales and use tax rates go from 6% to 7%, and the sales tax is no longer permitted on “gasoline or diesel fuel used to operate a motor vehicle on the public roads or highways of this state”. So the plain language of HCJR UU authorizes continued sales tax collection on all gasoline and diesel oil which is not used to operate a motor vehicle on the public roads or highways of this state, at the new 7% rate.

This 7% ‘ORV’ fuel sales tax will be over and above the motor vehicle fuel tax, which continues to be applied to recreational off-road vehicle and marine fuels as a ‘privilege tax’ under PA 451 of 1994. To make things even more confusing for fuel suppliers and consumers, there will be a third category of fuel subject to the sales tax, but not the motor vehicle or privilege tax: fuel used industrially, for construction, for farming, for lawn care, generators, and other miscellaneous purposes.

Less noticed, the 7% sales tax is also authorized on fuels other than gasoline and diesel oil used to operate vehicles on the public roads or highways of this state. This is quite a surprise since PA 468 of 2014, the motor vehicles fuels tax law of the road tax package, goes to great lengths to bring alternate transportation fuels such as liquid or compressed natural gas and lighter alternative petroleum products (LPG, propane, etc.) into the general road fuels tax regimen. This is significant; the U.S. Energy Information Agency estimates that these alternate transportation fuels currently account for about 6% of ground vehicle propulsion on the public roads in 2009 and their usage is increasing sharply. The sales tax liability on these ‘green fuels’ will put them at a serious economic disadvantage to gasoline and diesel fuel. But this did not deter the Sierra Club and their fellow environmental wackos from endorsing Proposal 2015-01. David Holtz and the Michigan Sierra Club board would appear to have a ‘Common Core’ reading comprehension level.

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