Trump Opens Red-Dyed Diesel to Highways, Defers Federal Tax Through Dec. 31

By
Harris
-
16

Key Points

  • President Trump signed an executive order Monday night that opens tax-exempt, red-dyed off-road diesel to highway use from Oct. 5 through Dec. 31, 2026.
  • The order gives Treasury five days to decide whether federal disaster-relief tax law allows it to defer the 24.4-cent-a-gallon federal diesel tax, without penalties or interest.
  • The tax is postponed, not cancelled: Treasury must set a date for repayment and look at ways, including legislation, to wipe out the deferred bill.
  • U.S. on-highway diesel averaged $6.199 a gallon in EIA’s Oct. 5 survey, down 18.3 cents in a week but up $2.488 from a year earlier.

President Donald Trump has signed an executive order that lets drivers put red-dyed diesel, the untaxed fuel normally reserved for farm and construction equipment, into vehicles on public highways through the end of the year. The order also tells the Treasury Department to postpone the federal diesel tax on that fuel. Whether that tax relief actually takes effect now depends on a Treasury legal finding due by the end of this week.

What happened

Trump signed the order, titled “Emergency Tax Relief on Diesel Fuel,” on stage Monday evening, Oct. 5, at a campaign rally in Grand Island, Nebraska, for Sen. Pete Ricketts and Gov. Jim Pillen, the Associated Press reported. “The typical trucker will save more than $100 every time they fill up,” Trump told the crowd, according to the AP.

Diesel is taxed by how it is used. Fuel sold for highway use carries federal and state excise taxes, while off-road diesel for farms, construction and heating is untaxed and dyed red so inspectors can spot it in a road vehicle, according to a White House fact sheet. Using dyed fuel on the highway normally brings penalties and back taxes.

According to the text of the order, the Treasury secretary must decide within five days whether relief is authorized under 26 U.S.C. 7508A, the tax code’s disaster and emergency postponement provision, including whether a qualifying event has occurred. If Treasury makes that finding, it is to defer the federal diesel tax incurred from Oct. 5 through Dec. 31, 2026, without penalties or interest. Within the same five days, Treasury must have the IRS announce that it will not penalize dyed diesel sold for or used on highways during that period.

The White House puts the federal tax at 24.4 cents a gallon, or about $60 on a 250-gallon fill. It says savings would top $100 per fill where states take matching action.

Latest development

States began lining up behind the order on Tuesday. In Mississippi, Gov. Tate Reeves said Public Safety Commissioner Sean Tindell plans to direct the state’s commercial transportation enforcement division not to enforce the dyed diesel ban on highways, Magnolia Tribune reported. South Dakota Gov. Larry Rhoden directed his Department of Public Safety to put safety inspections ahead of checks for dyed fuel while the federal order is in effect, his office said.

Ten states, including Texas, Oklahoma, North Carolina and Alabama, had already eased access to dyed diesel on public roads in the days before the federal order, CNN reported, citing a count by ClearView Energy Partners. State fuel taxes still apply in states that have not acted.

As of late Tuesday morning ET, the IRS newsroom had posted no announcement on dyed diesel, and Treasury had not published its determination.

Why it matters

Diesel fuels the trucks that haul freight and the machinery farmers use at harvest, so its price feeds into the cost of food and goods. The national average price topped $6 a gallon for the first time in September, CNBC reported, as supply disruptions tied to the wars in Ukraine and Iran rippled through fuel markets. The White House blames tight global supply on the Russia-Ukraine war and a lack of refining capacity.

EIA’s weekly survey put the U.S. average for on-highway diesel at $6.199 a gallon for the week of Oct. 5, down from $6.382 the week before and $6.529 the week of Sept. 21. (Data checked: 11:16 a.m. ET Oct. 6, U.S. Energy Information Administration.)

Not everyone thinks a tax break will fix prices. GasBuddy’s Patrick De Haan said such an order could save money for on-road users but not for farmers, who already use dyed diesel. “Taxes aren’t the problem, supply is,” he wrote on X, the AP reported. The order adds no new fuel supply. It comes days after Group of Seven nations agreed to a 100-million-barrel release of diesel and crude reserves.

The move also lands four weeks before the Nov. 3 midterm elections, with fuel and grocery costs high on voters’ minds.

What happens next

  • By about Saturday, Oct. 10: Treasury’s five-day deadline to decide whether 7508A relief applies, and for the IRS penalty announcement, which must also address penalties for missed semimonthly tax deposits.
  • Guidance: Treasury must spell out who is covered, any conditions, and the date by which the postponed taxes must be paid.
  • Enforcement: Treasury is to decide, and publicly announce, how the IRS will handle fuel-tank inspections and sampling during the relief period. The Federal Motor Carrier Safety Administration keeps all safety audits and inspections.
  • Supply and states: The Agriculture Department is to work with co-ops and rural distributors on dyed diesel supply in high-demand areas, and the White House will press more states to match the federal step.
  • Oct. 14: EIA’s next weekly diesel price report.

Related live coverage

Track diesel, oil and commodity moves as they happen on our Markets Live center, and follow White House actions on the U.S. Politics Live page.

Sources