The sales tax covers goods purchased by consumers in the state and is collected by retailers. The use tax applies to certain purchases for which a sales tax is not collected. These include goods purchased outside the state of Michigan, and used automobiles, snowmobiles, boats and other used recreational vehicles. It also applies to some specified services. Both taxes are assessed as a percentage of the value of the purchased product.
If voters approve Proposal 1, laws will go into effect that will increase the sales and use tax rate to a new, maximum allowable rate of 7 percent. These taxes are the largest combined sources of revenue for the state. In fiscal year 2015 they are estimated to bring in almost $9 billion, 31 percent of total state tax revenue. The next largest source is the individual income tax, which collects $8.5 billion. After these taxes, the revenue raised by a single tax drops off substantially: the State Education Tax — a statewide six-mill assessment on property — collects just $1.8 billion.[34]
Increasing the sales tax is expected to raise an additional $1.427 billion in the first year of adoption.[35] This amount accounts for the decrease in revenue resulting from exempting gasoline and diesel fuel from the state sales and use taxes.