Trump waives rules on red-dyed diesel, but local tax and other concerns remain

By Myra P. Saefong

An increase in farm fuel theft could be an unintended consequence of Trump's executive order, says one Mississippi farmer

The Trump administration will allow tax-exempt, red-dyed diesel fuel for highway use. Experts say the plan isn't without flaws.

President Trump earlier this week opened up a pathway for the widespread highway use of a tax-exempt "red-dyed" diesel that farmers use for their equipment in the fields. Yet concerns about the temporary action already have begun to surface.

Trump signed an executive order late Monday that temporarily allows the farmland fuel to be used by regular trucks and vehicles, with the aim of offsetting near-record-high diesel prices triggered in part by the Iran war.

In practice, the order will defer payment of the Federal excise tax imposed on the fuel for the rest for the year, without penalties or interest. The liability for deferred taxes will only be enforced if the Internal Revenue Service, at the direction of the Treasury secretary and the president, takes action to enforce it, a White House official told MarketWatch.

The Trump administration said the executive order could save truckers over $100 per refill for the remainder of 2026.

On paper, the executive order sounds like it might be significant, especially ahead of the midterm elections, said Patrick De Haan, head of petroleum analysis at GasBuddy. It circumvents the need to get Congress to act to cut the 24.4-cents-a-gallon federal diesel tax, he noted - but added that "complications, including that framework and patchy enforcement, prevent the entire national fleet of diesel consumers from benefiting."

U.S. drivers faced record-high prices for diesel in recent weeks, with prices at the pump for highway use climbing as high as $6.528 a gallon on Sept. 22, according to AAA. On Tuesday, it cost $6.315 on average.

While Trump's executive order addresses the federal excise tax, each state has its own diesel taxes that are often higher than the federal tax, and they also have their own laws banning dyed fuel in on-road or highway vehicles, De Haan said in commentary following Monday's announcement.

"A presidential order can't override state tax law," he noted.

It's also unclear if supplies of the red-dyed fuel will be immediately available to the driving masses.

Red-dyed diesel is sold at some truck stops and travel centers, according to Tiffany Wlazlowski Neuman, vice president of public affairs at NATSO, a trade organization representing the nation's truck stops, travel centers and off-highway transportation energy providers. "Selling dyed fuel at scale requires dedicated equipment and enough dyed supply at the rack," she said.

However, a White House official told MarketWatch that over 4,000 retailers nationwide distribute dyed diesel - saying there isn't likely to be any shortages as retailers can draw from exiting distribution networks, and adding that dyeing the diesel won't lead to additional supply bottlenecks. There are about 148,000 stations that sell fuel in the U.S., according to the NACS, a trade association of convenience and fuel retailers.

Farmer Preston Arrington, who has a 2,100-acre farm in Mississippi, told MarketWatch on Tuesday that when he bought a truckload of red-dyed diesel for his farming equipment a month ago, he paid $4.12 a gallon.

Transport loads are the cheapest way to buy dyed diesel, he said, with maybe 7,000 to 7,400 gallons per delivery. Arrington's farm needs about three truckload deliveries a year. His supply comes from a local distributor, not a Stop & Shop-like retailer, he noted.

Trump's executive order can help farmers because of their need to use trucks to deliver their crops during harvest season, said Arrington. If he has to send 80 truckloads of soybeans 80 miles round trip, he estimates savings of $30 to $40 per truckload - or up to $3,200.

Yet allowing widespread use of the fuel over the next few months also increases at least one risk for farmers: theft.

Allowing dyed fuel for on-road use could raise the occurrence of farm fuel theft, said Arrington. His dyed fuel is sometimes stolen, despite previous penalties for on-road use. Drivers in Montana, for example, can face a civil penalty of up to $1,000 on first offense.

Once dyed diesel is allowed for highway use, theft would be an "unintended consequence," said Arrington.

The tax-exempt status also isn't clear-cut because the payment is only postponed and each state has its own rules for fuel taxes.

While the Trump administration intends to delay payment of the federal excise tax owed, the new order doesn't outright waive those payment obligations, said Wlazlowski Neuman at NATSO. That could mean there's limited upside to selling dyed fuel into highway vehicles, she said.

Furthermore, once the temporary order expires at the end of this year, there's the issue of reinforcement. Residual dye lingers in tanks and fuel systems, Neuman said, adding that "even trace amounts in clear diesel can bring IRS and state penalties outside the waiver window."

-Myra P. Saefong

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10-06-26 1514ET