Tennessee governor lets farmers use untaxed diesel on roads after Trump defers federal enforcement

Tennessee will allow farmers and loggers to use cheaper, tax-exempt diesel on public roads through the month of October to provide relief from high prices during harvest season, Gov. Bill Lee announced Tuesday. 

Record-high diesel prices that economists attribute mostly to the United States’ war in Iran have become a pressure point ahead of midterm elections in November. Lee’s announcement comes after President Donald Trump issued an executive order at a Monday night campaign event in Nebraska temporarily deferring federal taxes on dyed diesel and allowing highway use through the end of the year.

The red-dyed diesel fuel has the same chemical makeup as regular diesel but is exempt from the taxes typically collected to pay for road maintenance because it is used exclusively in off-road farm machinery, timber harvesting equipment and industrial machines. Between September and November, farmers and loggers transport their harvested crops to points of sale using public roads in trucks that require hundreds of gallons of regular diesel fuel. 

Lee said he directed state departments on Friday to “suspend enforcement” of laws that typically prohibit using the untaxed diesel in vehicles traveling on public roads. 

“For many years, farm vehicles, construction equipment and other off-road vehicles have used what is known as red-dyed diesel. Do you know what that is? I don’t know what the hell it is, but whatever it is, it’s supposed to be very good,” Trump said. “Tonight, I’m going to sign a historic executive order to officially waive the off-road requirement and allow anyone to purchase tax-free red-dyed diesel for any reason.”

Trump’s order tasks the Secretary of the Treasury with determining details including which taxpayers would be covered and any conditions on the tax relief.

The order does not eliminate those federal tax obligations, but instructs the secretary to explore ways to forgive the tax, including potential legislation.

Normal diesel fuel is subject to a federal tax of 24.4 cents per gallon. Tennessee taxes regular diesel at an additional 27 cents per gallon. With both taxes waived, Tennesseans who take advantage of the temporary reprieve could save around 51.4 cents per gallon.

Diesel fuel prices remained above $6.03 per gallon on average in Tennessee as of Tuesday, according to AAA’s gas price tracker. The price hit an all-time high on Sept. 22 at $6.22. Diesel cost an average $3.41 per gallon a year ago, for comparison.

A 200-gallon semi truck tank would cost around $1,206 to fill with regular diesel fuel in Tennessee at Tuesday’s prices. Using dyed diesel to fill the tank would save about $102.

U.S. Secretary of Agriculture Brooke Rollins said Monday that Trump’s order is “expected to represent approximately $640 million in combined federal and state savings.”

Multiple Tennessee lawmakers and the state’s cattleman association penned letters to Lee in late September and early October urging him to follow 10 other states in waiving state taxes or dyed diesel enforcement.

Lee did not extend the waiver as long as some Tennessee lawmakers would have liked; Tennessee Rep. Rusty Grills and Sen. Page Walley asked the governor to allow dyed diesel to be used on public roads through Nov. 15.

Tennessee lawmakers seek relief for farmers, loggers amid record-high diesel prices

Jeff Colgan — a professor of political science at Brown University who specializes in the intersection of energy, markets and global politics — said he understands why lawmakers want to shield consumers from price volatility, but stressed that temporarily waiving fuel taxes is a short-term patch.

“I’m sympathetic, but it is the case that we pay taxes for a reason, and that roads don’t come for free,” he said. “I think policymakers then have to balance the immediate needs with those longer-term solutions.”

It’s not clear how much the move could save farmers or cost the state in lost tax revenue.

Most of the proceeds from Tennessee’s gas taxes go into the state’s highway maintenance fund and other state coffers. Tennessee is already about $400 million short in covering existing annual highway maintenance and improvements, officials with the Tennessee Advisory Commission on Intergovernmental Relations, TACIR, recently told lawmakers. 

Gas tax revenues aren’t keeping pace with inflation or road construction needs, and Tennessee’s “pay as you go” model prevents the state from borrowing money to pay for road work. The recent TACIR report predicts that Tennessee will have roughly $7.8 billion in annual road costs in 2055, and with gas taxes generating a fairly stagnant $3.2 billion per year, the state may face a $4 billion annual deficit unless it raises taxes or allows borrowing for road projects.