Tennessee Trucking Association, fuel providers say clarity is needed on dyed diesel relief

The Tennessee Trucking Association and some Tennessee fuel providers are cautioning diesel-powered vehicle drivers to wait for clarity before using dyed diesel meant for off-road vehicles on public roads after recently announced respites from tax enforcement.

President Donald Trump issued an executive order Monday instructing the U.S. Treasury Department to defer federal taxes on dyed diesel and allow highway use through the end of the year. Tennessee Gov. Bill Lee on Tuesday said the state would suspend enforcement of rules limiting the use of the dyed, tax-free diesel to off-road vehicles to provide relief to farmers and loggers from high fuel prices during harvest season.

Red-dyed diesel fuel is chemically the same as regular diesel, but is typically only permitted for use in off-road vehicles because the fuel is exempt from taxes collected by the state and federal government to pay for road maintenance. 

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The pause in enforcement is meant to help some diesel fuel users save money at the pump amid record-high diesel prices that economists attribute mostly to the United States’ war in Iran. In Tennessee, untaxed dyed diesel costs around 51 cents less per gallon than regular diesel.

But the details of how this relief will work in practice are hazy, including who is eligible to purchase and use dyed diesel on public roads, whether taxes on the fuel will ultimately be due at a later date, and what reporting requirements will be involved.

Trump’s executive order instructs the Secretary of the Treasury to determine which taxpayers are covered and any conditions on the tax relief and “explore” potential ways to forgive the tax. The Internal Revenue Service has yet to issue implementation guidance.

“The executive order provides for temporary penalty relief and potential tax deferral; it does not necessarily eliminate the underlying tax obligations,” Tennessee Trucking Association President and CEO Donna England wrote in an email to the Lookout on Thursday.

“We look forward to reviewing the IRS’s implementing guidance to better understand how the relief will work in practice,” England wrote. “Carriers need clear federal and state guidance on eligibility, reporting requirements and any taxes that remain payable.”

Until that guidance comes, the Tennessee Trucking Association is encouraging its members to “consult with their tax and legal advisors, maintain accurate records, and avoid making assumptions about eligibility,” according to England.

The Energy Marketers of America, a national federation of energy trade associations, has warned truck stops and gas stations to “proceed with caution” until further guidance is issued.

Caleb Haywood — a partner in Espey Oil Co. Inc., based in Huntingdon, Tennessee — said there is a “lot of gray area” and his company has been advised to tell customers not to run dyed diesel in on-road vehicles for the time being.

“There’s no real clarity,” Haywood said. “I think everybody needs to kind of just pump the brakes and we’ll see how this thing shakes out.”

Small & Small Oil Co., a fuel provider based in Fayetteville, Tennessee, posted a statement to its social media Tuesday warning that both Lee’s announcement and Trump’s executive order aren’t clear on “who can take advantage and when they can do it, penalty free.”

Questions also remain regarding what happens when enforcement resumes. 

Tennessee Code states that a civil penalty of $1,000 or $10 per gallon of dyed fuel (whichever is greater) can be assessed against anyone who puts dyed fuel in the tank of a vehicle used on public roadways. This penalty can be waived in whole or in part at the commissioner’s discretion. 

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Lee’s Oct. 2 letter to Tennessee Agriculture Commissioner Andy Holt, Transportation Commissioner Will Reid, Department of Revenue Commissioner David Gerregano and Department of Safety & Homeland Security Commissioner Jeff Long directs suspended enforcement of dyed diesel restrictions on the state’s “agricultural economy” through the end of October.

“Specifically, we should not enforce restrictions on persons engaged in agricultural or forestry operations, while that person is using a vehicle on the highways of this State in connection with the harvesting and hauling of crops, livestock, timber and other forest products and the transportation of farm and forestry supplies and equipment,” Lee wrote.

But the dye used to identify the tax-free off-road diesel can remain in fuel tanks and fuel lines even after operators switch back to using clear diesel, according to England.

“Officials need to clarify how these situations will be handled so carriers that complied with the temporary rules aren’t left facing uncertainty,” England wrote.

Haywood agreed. 

“If they do this full-blown, then there’s going to have to be some leniency,” Haywood said, particularly referring to the executive order that lasts through the end of 2026. “January 1st, they can’t start writing tickets again, because there’s going to be some residue left in all these tanks.”