LANSING – The Department of Treasury issued a requirement Tuesday that gasoline retailers prepay sales tax on gas at 21.3 cents a gallon, the highest level in history, a day after Treasury officials met with oil industry representatives urging a change in the prepayment law so that the state gets more revenue and station owners have a more manageable way of calculating prepaid tax.

On Tuesday, the department issued Revenue Administrative Bulletin 2011-3, which superseded RAB 2011-1 that was issued in April, on the amount of prepaid sales tax gasoline retailers have to prepay on fuel.

Beginning September 1, that rate will be 21.3 cents a gallon. Currently, retailers have to pay 17.6 cents a gallon, and have, by reason of RAB 2011-1, since June 1. Before that increase, for a year, retailers prepaid 14.2 cents a gallon.

In 2008, when gasoline prices hit nearly $4.50 a gallon, the state required prepayment of 18.5 cents a gallon.

Under a 2008 amendment to the state’s General Sales Tax Act, Treasury has to review the prepaid rate every three months, and adjust it if the average change in the price of self-serve unleaded regular gasoline has changed by at least 10 percent.

But Mark Griffin, executive director of the Michigan Petroleum Association, said it would be better for both the state and dealers if the prepayment figures were adjusted every month.

At a time when gas prices go up, Griffin said, setting a prepayment rate as much as six weeks to eight weeks out can work in the retailer’s favor if the prepaid rate is actually less than the actual rate. Some retailers can then trim a few pennies off their retail price and bring in customers, he said, but unless the state then audits those retailers, it will not know if it has gotten the full amount of sales tax owed.

On the other hand, if gas prices drop and the prepaid amount is less than the actual sales tax owed, then stations are owed refunds, Griffin said.

And if the state finds itself in a cash-short situation, as it did in 2008 and 2009, it may not have sufficient revenues available to pay those refunds, Griffin said.

In 2008 and 2009, some retailers were owed refunds of as much as $600,000 and were on the verge of closing because they desperately needed the money and the state could not pay the refunds.

In just the last five years, the prepaid rates required by the state have varied widely. From April 2005 to April 2006, it was 9.9 cents, then from May 2006 to May 2007 it was 12.7 cents. It went up to 13.1 cents from May 2007 to March 2008, then from April to September 2008, it was 16 cents.

From October 2008 through February 2009 it stood at 18.5 cents. Then from March through May 2009, it was lowered to 11.6 cents. Then from June through August it was set at 9.8 cents and then, starting in September through May, it was 12.4 cents.

Griffin (who said Treasury officials said nothing during the meeting on Monday about the upcoming change) said he and executives from the American Petroleum Institute and other companies urged the state to push for a change in the law so that the prepayment rate is assessed every month.

That way, the state could issue a ruling on prepayment amounts the 15th of each month and have it take effect the following month, he said.

With oil and gasoline prices being so volatile, that system makes more sense to both the state, which would have greater assurance it is collecting the proper amount of sales tax, and the retailers, who would then be less likely to either have to make additional payments or need refunds, Griffin said.

State officials showed interest in the idea, Griffin said.

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