EARMARK PORTION OF SALES TAX
FOR STATE TRUNKLINE FUND
Senate Bill 351 (S-1)
Sponsor: Sen. John Proos
Senate Committee: Transportation
House Committee: Transportation
Complete to 3-27-12
SUMMARY OF SENATE BILL 351 AS PASSED BY THE SENATE 3-27-12
Senate Bill 351 would amend Section 25 of the General Sales Tax Act (1933 PA 167) to change the current distribution of sales tax revenue. The bill would direct an amount equal to 18% of the tax collected at 4% from the sale of motor fuel from the state General Fund to State Trunkline Fund (STF) for the purpose of matching federal-aid highway funds.
The bill indicates that this redirection of sales tax revenue would begin with the fiscal year ending September 30, 2011.
FISCAL IMPACT:
The total impact of Senate Bill 351's redirection of sales tax attributable to gasoline and diesel motor fuel sales, from the state General Fund to the STF would be approximately $135.1 million ($112.6 gasoline plus $22.5 diesel.)
Michigan is one of several states to impose a sales tax on motor fuel sales, in addition to motor fuel excise taxes. Sales of motor fuels are subject to the state's 6% sales tax on retail sales, established in the General Sales Tax Act (1933 PA 167). The tax base for the sales tax on motor fuel sales is the motor fuel retail price, including the federal excise tax, but not including the state motor fuel excise tax.
The distribution of revenue from the Michigan sales tax is earmarked, in part, in Article IX of the 1963 Constitution. Section 25 of the General Sales Tax Act reflects those constitutional earmarks as well as two additional statutory earmarks: One hundred percent (100%) of the tax at 2%, and sixty percent (60%) of the tax at 4% is dedicated by the State Constitution to the School Aid Fund. Fifteen percent (15%) of the tax at 4% is constitutionally earmarked for local revenue sharing. In addition, a portion of the sales tax on motor fuel and other automotive products is statutorily earmarked, in Section 25, Subsection (4) of the General Sales Tax Act, to the Comprehensive Transportation Fund (CTF), a state fund established in Section 10b of 1951 PA 51 for public transportation programs. This earmark is sometimes described as the "auto-related sales tax." There is also an earmark in the General Sales Tax Act, effectively $9.0 million, to the Michigan Health Initiative Fund. The balance of sales tax revenue the amount not otherwise constitutionally or statutorily earmarked is credited to the state General Fund.
Senate Bill 351 would earmark an amount equal to 18% of the revenue from the sales tax imposed at 4% from the sale of motor fuel to the STF for the purpose of matching federal-aid highway funds made available to the state.
The earmarking proposed by Senate Bill 351 would not affect the current constitutional or statutory earmarks to the School Aid Fund, constitutional revenue sharing, the CTF, or the Michigan Health Initiative Fund. The bill would redirect to STF the sales tax attributable to motor fuel sales that would otherwise go to the state General Fund. To put it another way, 18% of the tax collected at 4% is effectively the amount of sales tax revenue credited to the General Fund after current constitutional and statutory earmarks.
Based on February 2012 Michigan Department of Treasury estimates, approximately 4.345 billion taxable gallons of gasoline will be consumed in Michigan in FY 2012-13. At this level of consumption, and an average pump price of $4.00 per gallon, the sales tax on retail sales of gasoline will generate approximately $936.9 million in state revenue.
Using the assumptions and estimates noted above, 4.345 billion taxable gallons of gasoline at an average pump price of $4.00 per gallon, we estimate that Senate Bill 351 would effect the redirection of $112.6 million from the state General Fund to the STF.
The bill would also redirect sales tax attributable to diesel motor fuel. Consumption of diesel motor fuel is roughly 20% of gasoline consumption of gasoline (approximately 856 million gallons as compared to 4.345 billion gallons of gasoline). As a result, without accounting for variation in diesel fuel pump price, we estimate that Senate Bill 351 would also redirect approximately $22.5 million in sales tax attributable to diesel sales from the state General Fund to the STF.
Thus, as noted earlier, the total impact of Senate Bill 351's redirection of sales tax attributable to gasoline and diesel motor fuel sales, from the state General Fund to the STF would be approximately $135.1 million ($112.6 gasoline plus $22.5 diesel.)
Note that these are broad estimates. The actual amount of sales tax attributable to sales of gasoline, and the amount redirected to the STF under Senate Bill 351, will depend on two variables: the level of motor fuel consumption and the price of motor fuel. If the actual average price of fuel remains constant and consumption falls, sales tax revenue will be less. Consumption of gasoline has declined in Michigan since a FY 2000-01 peak of 4.942 billion gallons to the current estimated consumption level of 4.345 billion gallons.
Conversely if the price of fuel rises, and consumption remains constant, then sales tax revenue and the amount of the Senate Bill 351 STF earmark will increase.
Some representations of state sales tax revenue distribution show that more than 100% of sales tax revenue is currently earmarked. These representations include the sales tax earmark to local units of government (statutory revenue sharing) made in the Glenn Steil Revenue Sharing Act 21.3% of the tax collected at 4%. However, this earmark is subject to appropriation and the legislature has not appropriated the full amount of the earmark. The earmark for statutory revenue sharing is effectively treated in the same way as any discretionary General Fund appropriation.
The bill indicates that the earmark of sales tax revenue to the STF is for "the purpose of matching federal aid highway funds as those federal funds are made available to the state."
For additional information on state matching funds for federal aid highway programs see: Federal-Aid Highway Funds in State Transportation Budget on the House Fiscal Agency website.
http://www.house.mi.gov/hfa/PDFs/FINAL%20Transportation%20Federal%20Aid%20Analysis%20Feb%202012.pdf
For additional information on the taxing of motor fuels, see:
Motor Fuel Taxes, Sales Tax on Motor Fuels, and Tax Collection on the House Fiscal Agency website. http://www.house.mi.gov/hfa/PDFs/tax%20rates%20and%20collection%202012%20update.pdf
[Please see the PDF version of this analysis, if available, to view this image.]
Fiscal Analyst: William E. Hamilton
■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.