In its first year, a red dye helped the federal government collect somewhere between $600 million and $700 million in diesel tax it had not been getting. The dye arrived with a 1993 budget law, after the Federal Highway Administration estimated that fuel-tax evasion was costing Washington several hundred million dollars a year, and the idea was simple enough to fit in a fuel tank.
Diesel for farms, construction and home heating is untaxed, highway diesel carries 24.4 cents a gallon, and the two are nearly the same fuel — so the untaxed kind is dyed red, and an inspector can spot it in a truck. Get caught and the federal fine runs $1,000 or $10 a gallon.
This fall the dye changed jobs. With diesel averaging about $6.44 a gallon, Texas Gov. Greg Abbott issued a disaster proclamation on Sept. 28 letting farmers and truckers run dyed diesel on state roads. Arkansas followed the next day for farm and timber trucks, noting in its order that the state's 2026 crop budgets had assumed diesel at $2.46 a gallon, less than half what it now costs there. Alabama, Louisiana and Nebraska have taken similar steps. And according to Reuters, the White House is preparing an executive order, possibly as early as this week, that would expand use of the tax-exempt fuel. The marker that exists to show a tax went unpaid is becoming the way not to collect it.
Except Washington has opened this door before. After Hurricane Harvey in 2017, the IRS let dyed fuel onto Texas highways but waived only the penalty. The 24.4 cents was still owed, by the driver or by the seller, and the relief answered a shortage of clear diesel, not its price. Reuters reported this time that the effect on what buyers pay will depend on how the relief is structured — which, going by Harvey, comes down to whether the order forgives the fine or the tax.
That distinction matters more than it sounds, because neither version adds a barrel. Refiners would still collect the market price, Rystad Energy analyst Preben Sørli told Reuters, and the main result would be lower federal tax revenue. GasBuddy's Patrick De Haan was blunter: "It's simply diesel with red dye added that's not taxed." Even the red fuel still pays a tenth of a cent a gallon, into a federal fund for leaking underground storage tanks.
Thirty-two years ago, the color red was how Washington found the money it was missing. The same color is now on the table as the way to stop asking for it.
The marker that exists to show a tax went unpaid is becoming the way not to collect it.
