The proposal changes the constitution to exempt “the sale or use of gasoline or diesel fuel used to operate a motor vehicle on the public roads or highways of this state” from sales and use taxes.[17] This does not eliminate all sales and use taxes levied upon gasoline and diesel fuel, however. Gasoline and diesel used for industrial vehicles and fuel-powered machinery, for example, will continue to be subject to sales taxes. So will any fuel used by industries that is not otherwise tax exempt.
Further, gasoline purchased for use in lawnmowers, snowmobiles, boats or other recreational vehicles would still technically be subject to the sales tax. As a practical matter, however, it is unlikely that the state Treasury Department will be able to ensure that fuel retailers collect the tax on fuel used for purposes other than driving on public roads and highways in Michigan.[18]
Removing the sales tax on most uses of fuel while also creating a new fuel tax may make a practical difference for marine fuel stations. Gasoline sold at fuel docks will still be subject to both the sales tax and new wholesale fuel tax created by Proposal 1. While there are no estimates on how much fuel is sold for these uses, current law assumes that exactly 2 percent of all gasoline sales are intended for motor boats, off-road vehicles and snowmobiles.[19]
Only gasoline and diesel fuel would be made exempt from the sales tax under Proposal 1. Other fuels, such as liquefied natural gas that powers some vehicles, would still be subject to sales taxes. Industries would still have to pay sales tax on any other fuels they use that are not otherwise tax exempt. Finally, any fuels used in the future to power vehicles — even those used on public roads — would lack a constitutional sales tax exemption as well.
Gov. Snyder has pledged to support legislation that would create tax exemptions for any gasoline or diesel fuel sales that might still subject to sales taxes if Proposal 1 is approved by voters. At the time of this writing, no such legislation exists.[20]