Issued: December 18, 2025
On October 7, 2025, Public Acts 17, 18, 19, and 20 of 2025 became law as part of a comprehensive road funding legislative package. Although these Public Acts (“PAs”) became effective on October 7, 2025, the key substantive changes made by this legislation that impact fuel taxes will take effect on January 1, 2026, as explained in this Notice. Except where otherwise provided, definitions applicable to this Notice may be found at the end of the Notice.
Prepaid Sales Tax on Motor Fuel
Under PA 17, the imposition of prepaid sales tax on motor fuel will cease on all motor fuel purchased on or after January 1, 2026. The prepaid sales tax on motor fuel will continue to apply to motor fuel purchased through December 31, 2025. Revenue Administrative Bulletin (“RAB”) 2025-14 sets forth the following prepayment rates per gallon for motor fuel for the December 2025 tax period: $0.152 (gasoline) and $0.191 (diesel fuel). With the expiration of the prepaid sales tax, RAB 2025-14 is the final prepaid sales tax RAB to be issued by Treasury. As explained below, this legislation does not preclude taxpayers (e.g., retailers and wholesalers) from claiming the credit on their 2025 sales tax returns for prepaid sales tax paid to vendors for motor fuel purchases made before January 1, 2026 even if the return (whether original or amended) is due on or after January 1, 2026 (e.g., the January 20, 2026 due date for the December 2025 return for monthly filers).
For gallons of motor fuel purchased in December 2025, retailers are to claim the credit on their December 2025 return for prepayments paid to their vendors (e.g., where they were charged the prepaid sales tax) on those gallons in the same manner as before the enactment of PA 17. Although wholesalers may charge their customers the prepaid sales tax for motor fuel sales made in December 2025 in the same manner as before the enactment of PA 17, wholesalers are encouraged to not charge the prepaid sales tax to their customers (e.g., retailers or other wholesalers) for fuel sold in December 2025 to recoup the prepaid sales tax they may have paid to their vendors. Instead of charging the prepaid sales tax to their customers, wholesalers will be allowed to claim the credit on their December 2025 returns by using Form 5083 – Fuel Supplier and Wholesaler Prepaid Sales Tax Schedule for motor fuel sold in December 2025. To facilitate this process, Treasury is revising the instructions to Form 5083 and its tax return filing procedures to allow wholesalers to claim the credit for these December 2025 sales even though Form 5083 has historically been reserved only for motor fuel delivered to out-of-state locations upon which prepayments were made by the wholesaler to its vendors.
Note: To facilitate the complete phase-out of the prepaid sales tax, when claiming their prepaid credits for their December 2025 sales tax returns, taxpayers may include the gallons of motor fuel held in “dead storage” as of December 31, 2025, upon which prepayments were made to their vendors. For this purpose, “dead storage” has the same meaning as that term is defined in Section 2 of the Motor Fuel Tax Act (“MFTA”), MCL 207.1002, and as described further below in this Notice.
Sales and Use Tax on “Eligible Fuel”
Under PAs 17 and 19, the sale, use, storage, or consumption of “eligible fuel” is exempt from both sales tax and use tax beginning January 1, 2026. Therefore, taxpayers can exclude sales of “eligible fuel” from their gross proceeds for sales made on and after January 1, 2026.
International Fuel Tax Agreement (“IFTA”) – Use Tax
Under PA 18, the use tax imposed under 2004 PA 175 on motor fuel and alternative fuel used or consumed by an IFTA motor carrier will no longer be imposed on and after January 1, 2026. Accordingly, this use tax will continue to be imposed through the tax period ending December 31, 2025. Sales and use tax paid by an IFTA motor carrier for motor fuel or alternative fuel purchased before January 1, 2026, remain eligible for the 6% credit allowed under 2004 PA 175.
MFTA Motor Fuel and Alternative Fuel Taxes
Under PA 20, effective January 1, 2026, the MFTA tax rate applicable to motor fuel and alternative fuel is to be calculated by adjusting the $0.51 per gallon (or gallon equivalent) base rate established by PA 20 for inflation. The inflation adjusted MFTA rate effective January 1, 2026, is $0.524 per gallon (or gallon equivalent) on motor fuel and alternative fuel. Under PA 20, the MFTA rate effective January 1, 2027 will be based on the 2026 rate adjusted for inflation and this process (whereby the tax rate for each calendar year is based on the tax rate in effect in the immediately preceding calendar year and adjusted for inflation) will continue for each calendar year thereafter.
PA 20 also establishes a one-time floor stock/inventory tax for gasoline and undyed diesel fuel (exceeding certain gallon thresholds) that is held in storage by end users or held in storage for resale (including wholesalers with bulk storage) as of 11:59 p.m. on December 31, 2025. For those holding gasoline or undyed diesel fuel for resale (e.g., retailers and wholesalers), the threshold is “dead storage” (i.e., 200 gallons for a tank with a capacity of less than 10,000 gallons and 400 gallons for a tank with a capacity of 10,000 gallons or more), and the floor stock/inventory tax is to be applied on a per tank (not tank compartment) basis. For end users, the threshold is 3,000 gallons. For example, previously taxed gasoline and undyed diesel subject to this floor stock/inventory tax will be subject to a tax of $0.214 per gallon [$0.524 (2026 rate) minus $0.31 (2025 rate) = $0.214]. These gallons must be reported to Treasury by February 20, 2026 on Form 4010 – Gasoline and Diesel Fuel Inventory Report with the applicable tax due. Gasoline and undyed diesel fuel purchased by a wholesaler prior to 11:59 p.m. on December 31, 2025 that has not been delivered to a bulk tank or sold to a retailer or end user (i.e., inventory in transit) is not subject to floor stock/inventory tax.
Note: Taxpayers that have received a Form 4010 from Treasury must file the completed form by February 20, 2026 even if they do not have taxable gallons to report. Failure to file Form 4010 (with the applicable tax payment due) will result in an assessment for tax, interest, and applicable penalty. If there are no taxable gallons to report, taxpayers must check the box in Part 1 of Form 4010. For purposes of this floor stock/inventory tax, gallons of gasoline or undyed diesel fuel that will be used for a nontaxable purpose under MFTA (e.g., non-highway use or in an implement of husbandry) may be excluded when calculating gallons to be reported.
IFTA Motor Fuel and Alternative Fuel Tax Rates
With PA 18’s elimination of the use tax imposed under 2004 PA 175, the tax rate imposed on motor fuel and alternative fuel used or consumed by IFTA motor carriers will be based solely on the rate imposed under the Motor Carrier Fuel Tax Act (“MCFTA”), which must be equal to the MFTA rate on those fuels. Therefore, the increased MFTA rate on motor fuel and alternative fuel established under PA 20 (that become effective January 1, 2026) will result in the same rate being applied to motor fuel and alternative fuel used or consumed by IFTA motor carriers for the calendar year beginning January 1, 2026. For example, for 2026, the rate imposed under the MCFTA will be $0.524 per gallon (or gallon equivalent).
Exemption Claims (Form 3372 or Equivalent)
In general, a consumer is not required to provide a Form 3372 - Michigan Sales and Use Tax Certificate of Exemption (or equivalent claim of exemption) to the retailer in order to purchase the eligible fuel exempt from sales tax or use tax under PAs 17 and 19. Likewise, a fuel retailer is not required to obtain a Form 3372 (or equivalent claim of exemption) when making sales of eligible fuel exempt from sales or use tax under PAs 17 and 19. For example, it would be impractical for a retailer operating a gas station retailer to require motorists to provide a Form 3372 each time they fill up their vehicles. See also Examples 6 and 9 below.
NREPA FEE
The phase out of the prepaid sales tax does not impact the $0.01 per gallon environmental protection regulatory fee (“Fee”) imposed under section 21508 of the Natural Resources and Environmental Protection Act, MCL 324.21508, on “refined petroleum.” Therefore, even though the prepaid sales tax will no longer be reported to Treasury on Form 173 after the phase out, the Fee must continue to be reported on Form 173 as under current law. Form 173, including the instructions, for tax periods beginning on and after January 1, 2026, will be updated to reflect the phase-out of the prepaid sales tax.
Other Sales or Use Tax Exemptions
PAs 17 and 19 do not affect other exemptions available to taxpayers. For example, even if a fuel does not qualify as “eligible fuel,” the fuel may still be exempt (in whole or in part) from sales tax or use tax under the agricultural production and industrial processing exemptions, entity-based exemptions (e.g., nonprofit or governmental entities), and the 2% exemptions for residential use of natural or artificial gas, and home heating fuel under sections 4n of the GSTA and UTA. Likewise, if a fuel qualifies as “eligible fuel” under PAs 17 and 19 it will be exempt from sales tax and use tax even if it does not qualify under the specific conditions for another exemption or is excluded from exemption under the terms of another exemption provision.
Examples
Unless otherwise stated in an example, the following examples assume that the sale takes place on or after January 1, 2026. These examples also assume that another exemption (e.g., industrial processing, agricultural production, or entity-based) was not claimed by the purchaser.
Example 1: Fuel Supplier purchases 5,000 gallons of gasoline from a Michigan terminal at 11:15 p.m. on December 31, 2025 and the terminal operator collects the prepaid sales tax from Fuel Supplier. Fuel Supplier sells 2,000 gallons of that gasoline to Gas Station ABC at 11:45 p.m. on December 31, 2025 and 3,000 gallons of that gasoline to Gas Station XYZ at 1:30 a.m. on January 3, 2026. Fuel Supplier charges the prepaid sales tax on the 2,000 gallons sold to Gas Station ABC and does not charge prepaid sales tax on the 3,000 gallons sold to Gas Station XYZ. Both Gas Station ABC and Gas Station XYZ sell all 5,000 gallons of this gasoline in January 2026 to their retail consumers. The gasoline qualifies as “eligible fuel” and, because it was sold after December 31, 2025, Gas Station ABC can exclude the retail sale of the 2,000 gallons from its gross proceeds and Gas Station XYZ may exclude the retail sales of the 3,000 gallons from its gross proceeds when filing their January 2026 sales tax returns. In addition, Fuel Supplier may claim a prepayment credit for the 3,000 gallons it sold to Gas Station XYZ on its December 2025 sales tax return (using Form 5083). The credit would be equal to $0.152 per gallon based on RAB 2025-14.
Example 2: Same facts as Example 1, except that Fuel Supplier chooses not to charge the prepaid sales tax to Gas Station ABC on the 2,000 gallons of gasoline that it sold to Gas Station ABC to make itself whole. Fuel Supplier may claim the credit for the prepaid sales tax on the 2,000 gallons on its December 2025 sales tax return (using Form 5083). The credit would be equal to $0.152 per gallon based on RAB 2025-14.
Example 3: Fuel Supplier is an aviation fuel registrant under section 94 of the MFTA and purchases 1,000 gallons of aviation gasoline (Av Gas), identified on the shipping paper or invoice as “aviation fuel” as required by Section 94 of the MFTA, for which it was charged the $0.03 per gallon aviation fuel privilege tax imposed under Section 203 of the Aeronautics Code of the State of Michigan, MCL 259.203. Fuel Supplier sells this aviation fuel to a fixed based operator (FBO) at a Michigan airport who sells the fuel at retail. Fuel Supplier’s sale to the FBO is exempt from sales tax as a “sale for resale.” The retail sales by the FBO to its customers will not be exempt under PA 17 because aviation fuel is excluded from the definition of “eligible fuel.”
Example 4: Retailer sells gasoline at its marina for use in watercraft. The gasoline qualifies as “eligible fuel” under PA 17, so Retailer can exclude these sales from “gross proceeds” when it files its sales tax returns.
Example 5: ACME Hardware sells a 20lb tank filled with LPG to Customer. Because Customer intends to use the LPG for grilling, Customer does not have a basis to claim an exemption for motor vehicle use. This retail sale is not exempt from sales tax under PA 17 as the LPG is not being sold for “use” or to be “used” as defined in Section 151 of the MFTA, MCL 207.1151, for motor vehicle purposes.
Example 6: Utility sells natural gas (i.e., alternative fuel) to a waste hauler for use in powering its garbage truck fleet that runs on compressed natural gas. The natural gas is piped into the waste hauler’s compressed natural gas vehicle filling station and is separately metered by Utility, so it is segregated from the natural gas used to heat the waste haulers office. The natural gas sold for use in the vehicle filling station is exempt from sales tax under PA 17 as it is a retail sale of “eligible fuel.” Although not required, waste hauler could provide Utility with an exemption claim (e.g., Form 3372 and checking the “Other” box and noting on the line: “Exempt as Eligible Fuel under MCL 205.54gg.”).
Example 7: Retailer sells kerosene from a block pump at its gas station. Retailer may sell this kerosene exempt as “eligible fuel” under PA 17. If the kerosene is used for a taxable purpose (e.g., for home heating), the purchaser will owe use tax on the kerosene under the UTA as it will not qualify as “eligible fuel” under PA 19 for this use.
Example 8: Retailer sells 100-gallon drums of kerosene to ABC Widget Co for use in its boiler to heat its commercial building. Retailer knows that ABC Widget Co will use the kerosene solely for that purpose because Retailer was awarded a contract by ABC Widget Co to supply it with the kerosene and the contract was based on a request for proposal to be the exclusive supplier of kerosene to ABC Widget Co for this purpose. The kerosene sold to ABC Widget does not qualify as “eligible fuel” under PA 17 based on these facts, so Retailer must include these sales in its “gross proceeds” for sales tax purposes.
Example 9: Fuel Supplier sells 500 gallons of dyed diesel fuel to a farmer. Farmer does not claim an agricultural production exemption under MCL 205.54a(1)(e) at the time of sale and Fuel Supplier does not have a blanket exemption (e.g. Form 3372) on file for transactions with Farmer. Fuel Supplier does not fraudulently fail to collect the sales tax and does not solicit Farmer to make an improper exemption claim (e.g., does not tell farmer to pretend that the kerosene that Fuel Supplier knows is for home heating purposes will be used for the farmers tractor), the fuel sale is exempt from sales tax under PA 17 as the retail sale of “eligible fuel.” If it is discovered upon audit that Farmer used the kerosene for home heating purposes, the kerosene would not qualify as “eligible fuel” under PA 19 and Farmer would owe use tax on the dyed diesel fuel under the UTA.
Example 10: Farming Corp purchased 5,000 gallons of undyed diesel fuel and 10,000 gallons of dyed diesel for use in its agricultural operations (i.e., for non-highway purposes) on December 16, 2025. As of 11:59 p.m. on December 31, 2025, Farming Corp will still have 4,000 gallons of undyed diesel fuel in Storage Tank 1 and 8,000 gallons of dyed diesel fuel in Storage Tank 2. Farming Corp has received Form 4010 from Treasury. In general, only 1,000 gallons of undyed diesel fuel would be subject to reporting because these are the gallons which exceed the 3,000 gallon threshold for “dead storage” for end users. However, because these gallons will be used for a nontaxable purpose under MFTA, Farming Corp may exclude these gallons from the reporting and tax calculation on Part 2 of Form 4010. The dyed diesel fuel is a nontaxable fuel under MFTA so the entire 8,000 gallons also need not be reported on Part 2 of Form 4010. Farming Corp must file Form 4010 even though it has no taxable gallons to report and no MFTA tax due, but Farming Corp would only need to complete Part 1 (including checking the box) and Part 3 of Form 4010.
Key Definitions
“Alternative fuel,” “alternative fuel dealer,” and “liquefied petroleum gas” mean those terms as defined in section 151 of the MFTA, MCL 207.1151.
“Eligible fuel” means motor fuel, alternative fuel, leaded racing fuel, and liquefied petroleum gas (if the liquefied petroleum gas is sold for “use” or is “used” as fuel for motor vehicles), except that “eligible fuel” does not include aviation fuel or motor fuel and alternative fuel used for residential, commercial, or industrial heating, ventilation, cooling (e.g., building utility systems) or otherwise exempt (from sales tax or use tax imposed at the 2% rate) under sections 4n of the General Sales Tax Act (“GSTA”), MCL 205.54n, or Use Tax Act (“UTA”), MCL 205.94n.
“Leaded racing fuel,” “motor fuel,” and “motor vehicle” mean those terms as defined in section 4 of the MFTA, MCL 207.1004.
“Use” or “Used” means any of the following for purposes of the inclusion of certain liquefied petroleum gas (“LPG”) as “eligible fuel”:
(i) Selling or delivering LPG, not otherwise subject to MFTA tax, either by placing it into a permanently attached fuel supply tank of a motor vehicle or exchanging or replacing of the fuel supply tank of a motor vehicle.
(ii) Delivery of LPG into storage, devoted exclusively to the storage of LPG to be consumed in motor vehicles on Michigan public roads or highways.
(iii) Withdrawing LPG from the cargo tank of a truck, trailer or semi-trailer for the operation of a motor vehicle upon the public roads and highways of this state.
(iv) Placing or delivering LPG into the fuel supply tank of a motor vehicle by or through the operation of an alternative fuel filling station, exchanging or replacing an LPG supply tank of a motor vehicle with another LPG supply tank filled with LPG, or by any other means not involving the delivery, receipt, or purchase of LPG from an alternative fuel dealer or any other means not otherwise described in subparagraphs (i) to (iii).
