What red-dyed diesel tax relief would actually mean for a trucker, an excavation contractor and a farm

The White House is considering rules that would let red-dyed diesel, the untaxed fuel normally reserved for tractors and other off-road equipment, be sold for broader use, Reuters reported on Monday, citing two people familiar with the talks. A White House official said no final decision has been made. Reuters described the idea as one of the leading alternatives to the diesel export ban that President Trump said on Sunday he is considering "very seriously," according to CNBC.

The pressure behind it is real. The Energy Information Administration's weekly survey put on-highway diesel at $6.529 a gallon for the week of Sept. 21, up $2.78 from a year earlier, and at $6.680 in the Midwest, where harvest is under way.

The number behind the headline: 24.3 cents, at most

Dyed diesel is not cheaper fuel. It is the same fuel without the federal highway tax. Reuters laid out the figures: highway diesel carries a federal tax of 24.4 cents a gallon, while dyed diesel pays only a 0.1-cent charge for the Leaking Underground Storage Tank Trust Fund. The most any buyer could save at the federal level is therefore 24.3 cents a gallon.

• Against EIA's $6.529 average, the 24.4-cent tax is about 3.7% of the pump price.
• Against the $2.78 rise over the past year, it would give back about 9% of the increase.

And that is the ceiling. Reuters noted the effect on the price buyers actually pay would depend on how the relief is written and how much sellers pass through. GasBuddy's Patrick De Haan told Reuters the plan does nothing for supply: "It's simply diesel with red dye added that's not taxed. It does nothing to improve supply or impact price."

The long-haul or regional trucker: about $3,740 a year

Take one truck running 100,000 miles a year at 6.5 miles per gallon, about 15,385 gallons. Both figures are examples; use your own. If truckers were allowed to buy dyed fuel and the full 24.3 cents reached them, that truck saves about $3,740 a year, or roughly $72 a week.

The same truck's fuel bill is about $42,770 higher than a year ago at EIA's prices (15,385 gallons times $2.78). The relief would cover under a tenth of that.

24,679 independent trucking and freight are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 2,868 in TX, 2,828 in CA, 1,916 in FL. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

The excavation contractor: it depends on which machines are burning it

Contractors are split down the middle. Federal law already treats fuel used in a trade or business "otherwise than as a fuel in a highway vehicle" that is registered for road use as off-highway business use, which is why excavators, loaders and dozers on a job site can already run on untaxed fuel. The relief changes nothing for those.

What it could change is the road side: dump trucks, lowboys and crew pickups. A firm whose registered trucks burn 20,000 gallons a year (an example) would save about $4,860 if they became eligible. On a job bid in August, that is real money but not a rescue: the same 20,000 gallons cost about $55,600 more than they did a year ago.

Roughly 141,913 independent construction and contracting firms are listed on CheckThisBiz. The ones with the most to gain are the site-work and hauling outfits whose fuel bill is mostly on the road, not in the yard.

The farm at harvest: less than the headline suggests

Farm Belt lawmakers are pushing hardest for relief, according to Reuters. But as De Haan pointed out, farmers already use untaxed dyed diesel in tractors and combines. For the field work, this plan is already the rule.

The gain is limited to the farm's registered road vehicles: grain trucks and pickups running to the elevator. A farm burning 3,000 on-road gallons over harvest (an example) would save about $729.

The mistake that would cost far more than the savings

Nothing has changed yet, and running dyed diesel in a road vehicle today is a federal violation. The penalty under 26 U.S.C. 6715 is the greater of $1,000 or $10 a gallon, and it rises for repeat violations. Fill a 150-gallon truck tank with dyed fuel and the tax you avoided is about $37; the penalty is $1,500.

States add their own layer. Reuters reported that Alabama, Louisiana and Nebraska have taken temporary steps in recent days to allow broader use of the untaxed fuel or suspend state penalties. That does not change the federal rule, and it does not apply across state lines.

What to actually do

• Do not switch fuel on a news report. Wait for a published federal rule or IRS notice that names who is eligible and from what date, and check your own state's rule separately.
• Split your gallons now. Pull last quarter's fuel records and separate on-road from off-road. That tells you in one line what the relief could be worth to you: on-road gallons times 24.3 cents.
• Keep the fuel surcharge in your quotes. Even full pass-through leaves more than 90% of the past year's increase in place.

For how the diesel price itself got here, see what record diesel means for a trucker, a landscaper and a farm and our report on the export ban under consideration. Crude is on the oil chart.

Sources: Reuters (via BOE Report); CNBC; EIA; 26 U.S.C. 6715 and 6421; business counts from CheckThisBiz. Mileage, gallon volumes and tank sizes are illustrative; savings and penalties are our calculations. This is general information, not tax, legal or financial advice.