Red Dyed Diesel Exempt from Federal Tax in US

In Nebraska, President Trump signed an executive order to waive an off-road requirement for the fuel, which is exempt from the federal highway tax.

·         On 5 October 2026, President Donald Trump signed an executive order allowing broader use of red-dyed diesel, which is usually reserved for off-road uses such as farming and construction.

·         The order defers federal road taxes on diesel through the end of the year and asks agencies to explore eliminating the deferred taxes. It also encourages states to waive taxes on dyed diesel.

·         Red-dyed diesel is otherwise the same as regular diesel, but is exempt from the 24.4-cent-per-gallon federal highway tax and some state taxes. The dye helps inspectors identify unauthorized road use.

·         Nearly a dozen governors had already allowed some road use of dyed diesel. In North Dakota, for example, farmers could save 19 cents per gallon under the state’s tax rules.

·         The move comes as diesel prices have climbed from under $4 a gallon in February to about $6.38, during the fall harvest when farms use more fuel.

·         The relief may be limited: farm machinery can generally already use dyed diesel, so the main new savings for some farmers would be on trucks used to haul crops on public roads.

·         Diesel accounted for 2.6% of the average crop farm’s expenses in 2025, while labour, rent and agricultural chemicals were larger costs. An agricultural economist said the tax relief would do little to offset the sharp rise in fuel prices.

·         Some farmers may also avoid using dyed diesel in trucks because the waivers are temporary and leftover dye could prompt questions during future inspections.

·         Farm groups have called for more substantial steps, including restricting diesel exports. The G7 has separately pledged to release 100 million barrels of diesel and crude oil reserves over four months.

 

[ABS News Service/06.10.2026]

President Trump said on Monday (05.10.2026) that a special kind of diesel fuel typically reserved for farm operations can be used more broadly, a measure aimed at easing fuel costs as average diesel prices surpassed $6.30 a gallon nationwide.

Campaigning in Grand Island, Neb., in support of Senator Pete Ricketts, Mr. Trump signed an executive order to allow the tax-free purchase of so-called red-dyed diesel, which is mainly used in agriculture and construction. The order directs cabinet agencies to defer payment of federal road taxes on diesel through the end of the year, and to “explore avenues” to eliminate the need to pay deferred taxes.

Mr. Trump’s action followed moves by almost a dozen governors across the Midwest and South over the last two weeks to permit dyed diesel fuel in road vehicles. Some governors are also suspending state taxes on dyed diesel. The executive order encourages more states to eliminate taxes on dyed diesel.

Dyed diesel is no different from regular diesel, except it contains a small amount of dye, usually red and added by the refiner. But it is exempt from the federal 24.4-cent-per-gallon federal highway tax and some state taxes that are used to fund road construction and maintenance.

Dyed diesel normally cannot be used in road vehicles and is not available at most gas stations or truck stops; the dye is added so inspectors can more easily tell if it is being used unlawfully on the road.

Many farmers say they have been financially bruised by Mr. Trump’s tariff policies, along with rising prices, and the president is trying to shore up support with rural voters before the midterm elections. In Nebraska, Mr. Ricketts, a Republican, is locked in a tight race with the independent challenger Dan Osborn, and recent New York Times/Siena polls have shown Republicans trailing in key races across Kansas, Iowa, Texas and Ohio. Farmers and ranchers are typically a strong voting bloc for Republicans.

“Record-high diesel prices are squeezing our ag producers, and this is a meaningful and timely step we can take to provide temporary relief and help our farmers and ranchers through the harvest season,” Gov. Kelly Armstrong of North Dakota said in an announcement last week that allowed dyed diesel to be used in some vehicles traveling on state highways.

North Dakota charges a 23-cent tax on each gallon of regular diesel but only 4 cents a gallon on dyed diesel. Mr. Armstrong’s executive order allows farmers to use dyed diesel in highway vehicles engaged in agricultural operations, saving them 19 cents per gallon.

Mr. Trump’s executive order and the state waivers come at a critical time for agricultural operations. The fall harvest, the time of year when farmers use the most diesel, has begun across the country. In February, before the United States attacked Iran and oil shipments through the Strait of Hormuz slowed, the national average diesel price was less than $4 per gallon, according to the U.S. Energy Information Administration. It was $6.38 on Monday, according to the E.I.A.

Groups representing farmers are seeking more than waivers on dyed diesel. Some have called for a ban on U.S. diesel exports, a drastic move that Mr. Trump had threatened to take but has not followed through on. Last week in a bid to relieve price pressures, the Group of 7 nations, including the United States, pledged to release 100 million barrels of diesel and crude oil reserves over four months.

While truckers may save 24.4 cents a gallon by using dyed diesel, allowing farmers to use it in their road vehicles won’t make a huge dent in their fuel costs.

Diesel also isn’t a major expense on farms. According to the Agriculture Department, diesel made up just 2.6 percent of an average crop farm’s expenses in 2025. Things like labor, rent and agricultural chemicals are much larger expenses.

“It probably won’t do a whole lot, really,” said Gregory Ibendahl, an agricultural economist at Kansas State University. It isn’t taxes on diesel that is hurting farmers, but the nearly doubling of the price from last year. What they really need, Mr. Ibendahl said, is “something big to get the prices back where they were before the Iran thing started.”

Richard Oswald, who grows corn and soybeans in Rock Port, Mo., said he expected he would use around 8,000 gallons of diesel to harvest his crops. He used less than 2,000 gallons to plant them in the spring.

“Last year, that 8,000 gallons was about $3 a gallon, and now it’s about $6 a gallon,” Mr. Oswald said, referring to dyed diesel.

While fuel may just be a small part of his expenses, the timing of the price spike, right before he gets paid for his crop, makes it seem worse. “We have this $3-a-gallon tax — this is how I think of it, as a tax, an unreasonable number — coming out of our bottom line,” Mr. Oswald said.

Over the next month or so, he will use a diesel combine to cut and thresh the crops, two diesel tractors to pull grain carts and a third diesel tractor to run a grain auger that places the grain in a storage bin.

All of those machines were already permitted to use the cheaper dyed diesel. It is only in his trucks — used to haul grain on the road to sell at the nearby grain elevator — where Mr. Oswald could benefit from using the cheaper fuel. Even though Missouri is one of the states allowing farmers to use dyed diesel in their trucks, he does not plan on doing so because the savings are small and the state’s executive order is temporary.

And he could be fined, or have to explain himself at a highway inspection in the future, if his fuel tank still has some dyed diesel after the exemption expires.

“I put red fuel in a truck,” Mr. Oswald said, “and then a year from now that’s forgotten and they zip a truck fuel tank and find a bit of dye in it, I’m going to be talking to a weights officer as to why I have dye in my truck.”