Trump Orders Red Diesel Relief

Washington — President Donald Trump signed an executive order on 5 October that tells the Internal Revenue Service to announce it will not penalize drivers who put red-dyed diesel, the untaxed fuel sold to farms and construction sites, into trucks on public highways from 5 October through 31 December. The order also tells the Treasury to decide whether the law allows it to put off collecting the federal fuel tax on diesel used that way during the same period.

The White House said the aim is to cut costs for truckers and farmers as diesel prices climb. The motoring group AAA put the national average for diesel at $6.38 a gallon on Monday, up from $3.68 a year earlier, according to the farm news service Brownfield Ag News.

What red diesel is

In the United States, diesel is taxed by how it is used, not by what it is, the White House fact sheet on the order notes. Diesel burned on public roads carries federal and state fuel taxes, which help pay for highways. Diesel used off the road, in tractors, bulldozers, generators or home heating, is exempt. To tell the two apart, the off-road fuel is dyed red, so inspectors can dip a truck's tank and see whether a driver is skipping the tax. Using red diesel on the road normally brings fines and back taxes.

The fuel itself is the same. "The only addition is red dye," the fuel-price analyst Patrick De Haan wrote on 6 October in a note that cited GasBuddy price data. The federal tax on road diesel is 24.4 cents a gallon, he noted.

What the order does

The order gives the Treasury Secretary five days to decide whether he can use Section 7508A of the federal tax code. That law lets the Treasury postpone tax deadlines by up to a year, and waive the interest and penalties, for taxpayers affected by a federally declared disaster, a significant fire, or a terrorist or military action. The order asks him to decide whether such an event has occurred and which taxpayers it affected, consulting the Secretary of War, the head of the Pentagon, as appropriate. If he finds the law applies, Treasury is to defer the federal tax owed on diesel used in highway vehicles from 5 October through 31 December 2026, without penalties or interest.

Also within five days, Treasury is to have the IRS announce that it will not fine anyone for selling or using red diesel on highways during that period. Treasury must then publish guidance spelling out who qualifies and when deferred taxes come due.

Under the order the tax is deferred, not forgiven. The order tells the Treasury to "explore avenues, including legislation," to cancel the deferred tax. The Agriculture Department is told to make sure farmers can still get red diesel in high-demand areas, and the Transportation Department is told to work with states and keep enforcing truck safety rules. The White House said the change could save truckers "over $100 per refill."

The catch: state law

A president can waive federal penalties but not state ones. Most states have their own diesel taxes, often higher than the federal one, and their own bans on red diesel in road vehicles. The order directs White House staff to encourage states to follow suit, but it cannot require them to.

De Haan counted six states that had eased their red-diesel rules: Alabama, Louisiana, Nebraska, North Carolina, Oklahoma and Texas. Brownfield's list differed and included Indiana and Missouri. Everywhere else, De Haan wrote, running red diesel on the road "remains illegal under state law."

He said big interstate trucking companies, which cross several states a day and report fuel taxes state by state, are the least likely to risk it. And whether drivers who switch will later get a tax bill for the deferred amount, he wrote, "is the biggest unanswered question I have." During Hurricane Dorian in 2019, he noted, the IRS waived the penalty for red diesel on the road but still required the tax to be paid.

Why prices are high

The White House blamed tight global diesel supply, citing the war in Ukraine and a shortage of refining capacity. De Haan pointed to disruptions in the Middle East, strikes on Russian refineries and falling global stockpiles. Last week leaders of the Group of Seven large economies agreed to release 100 million barrels of crude oil and diesel from emergency reserves.

The order itself adds no fuel. "Not a single gallon of diesel will be added to the market by this order," De Haan wrote. Gabriel Lade, an agricultural economist at Ohio State University, told Brownfield that if more drivers start buying red diesel, demand for it could rise, and with it the price farmers pay. "Knee-jerk reaction policies can backfire," he said.

What happens next

Treasury's decision and the IRS announcement are due within five days of the order, by about 10 October. Relief, if granted, runs through 31 December.