Great Lakes Wire

The Michigan legislature has approved a new state budget that includes funding for road improvements, following negotiations among House Republicans, Senate Democrats, and the Governor. The agreement was reached after a continuation budget was passed on October 1, 2025, which kept state government operations running until October 8.

The Governor had stated that ongoing road funding needed to be part of any final budget deal. While House Republicans initially advanced a $3.1 billion plan without increasing taxes, both the Governor and the Senate Majority Leader insisted that additional revenue—beyond just spending cuts—was necessary for approval.

Several tax proposals were considered and rejected by House Republicans during negotiations. These included suggestions such as an advertising tax, higher Corporate Income Tax rates, and a delivery tax. Ultimately, two bills were passed to secure the extra funds requested by the Governor and Senate leadership.

House Bill 4961 introduces changes that may impact small businesses in Michigan. This bill decouples certain provisions from federal tax law changes made under the Big Beautiful Bill (BBB) Act. The affected provisions include immediate deduction of research expenses, special depreciation rules for production property, bonus depreciation allowing full equipment cost deduction in the first year, increased business interest deductions, and higher limits on depreciable business asset deductions.

By decoupling these items from recent federal changes, Michigan’s tax code will remain aligned with previous federal law in these areas. For example, while federal law now allows up to $2.5 million for expensing under section 179a, Michigan will keep its cap at $1.25 million for state taxes. State officials estimate these changes would have reduced revenue by $400–$600 million annually over several years if not addressed through decoupling.

In addition to these measures, residents will be able to deduct tips, overtime pay, and Social Security income from their state taxes in line with other BBB provisions.

Another provision eliminates an annual $500 million transfer from Corporate Income Tax revenues to the Strategic Outreach and Attraction Reserve (SOAR) Fund—a program aimed at attracting large businesses—which will now be redirected toward road funding instead.

House Bill 4951 imposes a new 24% excise tax on wholesale marijuana sales earmarked specifically for roads. When marijuana was legalized in Michigan via public vote and petition drive it carried relatively low taxation compared to other states; this new measure is expected to generate about $420 million per year.

The legislation also replaces the existing 6% sales tax on gasoline with a motor fuel tax increase of 20 cents per gallon. Lawmakers say this change should raise roughly $1 billion annually for roads without raising consumer prices at the pump since all money collected will go directly toward transportation infrastructure needs rather than into general revenue funds.

Finally, fees for electric vehicles are set to rise: plug-in hybrid owners will see registration fees increase from $30 to $80 while fully electric vehicle owners’ fees jump from $60 to $160 per year.

"The Governor indicated early on that ongoing road funding must be a part of any budget deal."

"Despite House Republicans passing a $3.1 billion plan without raising taxes, the Governor and Senate Majority Leader demanded that new revenue, not just budget cuts, would be required in order to approve a budget and road funding."

"A variety of taxes have been put forward and dismissed by House Republicans including a tax on advertising, an increase in the Corporate Income Tax, and a delivery tax."

"In the end, the legislature passed two bills designed to provide the additional funds demanded by the Governor and the Senate."

"Unfortunately another bill to provide revenue for roads may affect some small businesses."

"This bill would preempt any state revenue loss from these federal tax changes under the BBB by reverting to the pre-BBB tax base through decoupling."

"These tax changes were expected to cost the state between $400 – $600 million each year for the next several years."

"Eliminates annual $500M deposit from Corporate Income Tax to Strategic Outreach and Attraction Reserve (SOAR) Fund which provided economic handouts to attract large businesses to Michigan. This money will now be used for road funding."

"When marijuana was legalized it was done through petition and vote of people—and tax was artificially low compared with other states."