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