ICYMI: The Michigan legislature passed a budget along with road funding based on a deal struck between House Republicans, Senate Democrats, and the Governor. Early on October 1, 2025, the legislature passed a continuation budget that kept state government open until October 8, 2025. Click HERE to read more about the budget.

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, and 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, small businesses will be affected.

Income and Corporate Tax Changes: Unfortunately, another bill to provide revenue for roads may affect some small businesses. House Bill 4961 does the following:

Decouples the following tax changes made in the Big Beautiful Bill (BBB) Act:

• Immediate Deduction of Research and Experimental Expenses (IRC 174A)
• Special Depreciation of Certain Production Property (IRC 168(n))
• Bonus Depreciation allowing for deduction of 100% of the cost of equipment in first year (IRC 168(k))
• Business Interest Deduction Increase (IRC 163(j))
• Increased Limit on Depreciable Business Assets Deduction (IRC 179)

Decoupling means protecting the relevant parts of a state’s tax code from the changes in the federal tax code, in most cases by remaining linked to federal law as it existed prior to the change.

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. For instance, the cap on 179a expensing, while 2.5M on federal taxes, will remain $1.25 on state taxes. These tax changes were expected to cost the state between $400 – $600 million each year for the next several years. NFIB opposed these changes. See our press release HERE.

Provides conformity with the BBB by allowing residents to deduct the following from their state taxes:

• Tips
• Overtime pay
• Social Security

Eliminates annual $500M deposit from the Corporate Income Tax to the 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.

Marijuana Tax: House Bill 4951 institutes a 24% excise tax on wholesale marijuana that will be earmarked for road funding. When marijuana was legalized, it was done through petition and vote of the people, and the tax was artificially low compared to other states. This is expected to raise $420M annually.

Replace Sales Tax at the Pump: The plan would remove the 6% sales tax on gas and instead increase the motor fuel tax by 20 cents. This is expected to raise about $1 billion for roads and would not raise prices for consumers, but ensures all money paid at the pump would go toward road funding.

Electric Vehicles Pay More: The bills would increase the fee for plug-in hybrid electric vehicles to increase from $30 to $80, and for electric vehicles from $60 to $160.