Trump Signs Order Opening Dyed Diesel to Highways and Deferring the Federal Tax

President Donald Trump signed an executive order Monday allowing off-road dyed diesel to be used on highways through the end of the year and directing the Treasury Department to defer the federal excise tax on that fuel without interest or penalties.

The White House fact sheet, dated Oct. 5, says the order can save truckers more than $100 a refill. It ties the move to a tight global diesel market and to the G7 agreement, already in place, to release 100 million barrels of oil and diesel over four months.

Highway diesel carries federal and state excise taxes. Diesel sold for farms, construction, and heating does not. That untaxed fuel is dyed red so inspectors can spot it in a truck tank and assess back taxes and penalties. The order tells the Internal Revenue Service, within five days, to announce that it will not impose the dyed-fuel penalties in 26 U.S.C. 6715 for highway sales or use from Oct. 5 through Dec. 31, 2026. The announcement is also to cover penalties for missed semimonthly tax deposits.

The tax deferral is written as a determination, not an automatic waiver. Within five days the Treasury secretary, consulting the secretary of war, must decide whether relief is authorized under 26 U.S.C. 7508A, including whether a qualifying event has occurred and which taxpayers are affected. If those findings are made, payment of the taxes in sections 4041(a)(1)(A) and 4041(b)(1)(B) incurred through Dec. 31 is to be deferred, to the extent the law allows, with no interest, penalties, or additions. The fact sheet also tells Treasury to look at ways to eliminate the deferred liability rather than merely postpone it.

Transportation is directed to work with states, industry, and labor on access to the dyed fuel. Agriculture is directed to protect farmers’ supply in high-demand areas and to press states to match the federal step. The White House Office of Intergovernmental Affairs is told to urge more states to line up their own enforcement with the Treasury action. The fact sheet says governors can use enforcement discretion to halt inspections and waive the state tax hit for on-road use of dyed diesel. State taxes are not wiped out by the federal order.

The fact sheet lists the diesel squeeze as a product of the Russia-Ukraine war, limited refining capacity, and refinery shutdowns in states that pursued green-energy policies. It also cites an earlier Transportation Department waiver of hours-of-service rules for drivers hauling gasoline and diesel. The Oct. 5 order is the new step: a year-end window for red diesel on the highway, and a path to defer the federal tax that normally comes with it.