Gov. Lee extends off-road diesel enforcement relief for farmers, loggers through Dec. 31

Tennessee farmers and loggers will be allowed to use tax-exempt diesel — usually limited to off-road vehicles — on public roads through the end of the year, Gov. Bill Lee announced Tuesday.

The move is meant to offer some relief during harvest season from high diesel fuel prices amid the war in Iran.

The red-colored diesel is the same as normal diesel but is not taxed because it is typically limited to off-road use and thus does not put wear and tear on public roadways.

Lee first directed state departments to suspend enforcement of the state laws that prohibit using the untaxed diesel on public roads in early October. The suspension was initially limited through the end of the month, but now matches the timeframe of President Donald Trump’s executive order temporarily deferring federal taxes on dyed diesel through Dec. 31.

Normal diesel fuel is subject to a federal tax of 24.4 cents per gallon and a state tax of 27 cents per gallon, meaning those purchasing dyed diesel for on-road use during the relief period could save around 51.4 cents per gallon. 

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

The Internal Revenue Service, IRS, stated it would not “impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide” from Oct. 1 through Dec. 31, according to guidance issued on Oct. 14. The IRS also stated that it will pause fuel inspections during that time period, and will not require taxpayers to keep records of dyed diesel distribution, sale or purchase during the relief period.

In a “Frequently Asked Questions” document published Oct. 23, the IRS stated it is “considering a grace period or other measures to address residual red dye in tanks” and will issue further guidance.

Federal guidance has not, however, eliminated the federal tax obligation, meaning taxes could still be due at a later date. Trump instructed federal departments to explore ways to fully eliminate the tax liability.

Lee’s directive does not specify whether the state will require documentation.

Trump announced a separate fuel relief program for farmers totaling $8 billion on Oct. 21, but details on payment rates and timeline have yet to be released. The expense may also require Congressional approval.