Red-Dyed Diesel Users Could Face Future Taxes, Industry Leaders Warn
Industry leaders warn drivers and truck stops could face taxes later for using red-dyed diesel
Fuel and transportation industry groups are warning truck drivers, farmers and truck-stop operators that the short-term savings from using red-dyed diesel may come with future tax obligations and compliance risks.
President Donald Trump signed an executive order this week directing the Treasury Department to temporarily expand access to red-dyed diesel for certain highway uses. The move is intended to ease the impact of diesel prices that remain near record highs and reduce costs for farmers, truckers and the broader supply chain.
However, the order does not eliminate the federal diesel fuel tax. Instead, it directs Treasury Secretary Scott Bessent to defer certain diesel tax payment obligations and provide penalty relief to the extent allowed by law. The order also calls for Treasury to explore ways to remove the tax requirement.
Until Treasury issues additional guidance, industry groups say it remains unclear who would qualify for relief, what conditions would apply and whether taxes could eventually be collected from drivers, fuel sellers or other parties involved in the transaction.
“Deferral is not forgiveness,” the Energy Marketers of America said in guidance to its members. The group urged fuel sellers to proceed cautiously while awaiting details from the Treasury Department.
Red-dyed diesel is traditionally sold tax-free for agricultural equipment and other off-road uses. The fuel is colored to distinguish it from diesel intended for use on public roads, where federal and state fuel taxes generally apply. The federal excise tax represents 24 cents per gallon, according to industry comments cited in the warnings.
The administration’s action seeks to broaden the use of dyed fuel temporarily, but fuel marketers say the potential savings may not justify the legal and operational uncertainty. The Society of Independent Gasoline Marketers of America and the National Association of Truck Stop Owners described the policy as an effort to encourage the supply chain to sell dyed diesel through nontraditional channels.
“We do not expect most reputable diesel retailers and fuel marketers to do this,” the groups said in a note to members.
They cited several reasons. First, the underlying tax may still be owed, limiting the financial benefit of selling or purchasing the fuel. Second, dyed diesel can leave residual color in storage tanks, dispensing equipment and vehicle fuel systems. That creates challenges for businesses that later return those systems to ordinary on-road diesel.
The groups also warned that fuel sellers could face liability and customer disputes if the rules change or if enforcement differs from one jurisdiction to another. In their view, those risks outweigh what could be a temporary and uncertain savings of 24 cents per gallon on diesel that is selling for more than $6 per gallon in some parts of the country.
For truck drivers, the biggest concern is the possibility of a patchwork of state rules. Federal action does not automatically require every state to permit dyed diesel in highway vehicles. Indiana Gov. Mike Braun recently lifted restrictions on the sale of red-dyed diesel for trucks operated by farmers on public roads, but rules may vary elsewhere.
Fuel analyst Patrick De Haan said the uncertainty could discourage larger users from making the switch. A truck operating across several states could face enforcement questions if it legally purchased or used dyed diesel in one state and then traveled into another jurisdiction that continued to restrict it.
“Whether anyone who makes the switch to dyed diesel suddenly gets a tax bill is the most unanswered question,” De Haan said in a post on X. He also cautioned that inconsistent state policies could create enforcement problems for interstate carriers.
The Owner-Operator Independent Drivers Association also offered a restrained assessment of the policy. OOIDA President Todd Spencer said expanded access to red-dyed diesel might provide some temporary relief, but he said lasting cost reductions will require greater stability in the fuel market.
“Allowing the wider use of red-dyed diesel will provide minimal relief. Market stability is essential to bring down costs for the long haul,” Spencer said.
The White House did not immediately respond to requests for comment. Until Treasury provides formal guidance, drivers and fuel sellers face uncertainty over eligibility, tax responsibility, state enforcement and the handling of equipment that has come into contact with dyed fuel.
For professional drivers, the immediate savings may therefore be limited. The policy could lower the amount paid at the pump in some situations, but industry leaders say the deferred tax, recordkeeping requirements and potential compliance exposure need to be clearly defined before widespread use becomes practical.
