Trump defers federal tax on dyed diesel, allows on-road use amid record prices

Donald Trump signed an executive order to lower the price of diesel. Specifically, it will allow anyone to purchase red diesel without federal taxes through the end of the year, "for any reason." The president announced the measure during a campaign event in Grand Island, Nebraska, weeks before the midterm elections. The decision comes as the price of diesel stands at a national average of $6.32 per gallon, according to the American Automobile Association (AAA).

Unlike gasoline, which is used primarily for cars and other personal vehicles, diesel is essential for freight transportation and activities such as agriculture, livestock farming and construction. Trucks, tractors, buses and much of the heavy machinery run on this fuel.

As for red diesel, it is almost the same fuel as regular diesel, but dyed red. Diesel used on public roads is subject to federal and state taxes. Diesel used off-road — such as in agricultural or construction machinery — is not subject to these taxes, and the red color helps authorities identify it so they can fine anyone using it on a highway. Until now, this was illegal and could result in heavy fines, as it is considered tax evasion.

With Trump's new executive order, that restriction is being temporarily relaxed, so red diesel may be used on public roads and payment of the federal tax is deferred. State taxes, however, depend on the decision of each governor.

In this context, the president signed the executive order in front of his supporters in Nebraska during an event in support of Republican Senator Pete Ricketts and Governor Jim Pillen, also a Republican.

For many years, farm vehicles, construction equipment and other off road vehicles have used what is known as red dye diesel. So tonight, I'm going to sign a historic executive order to officially waive the off road requirement and allow anyone to purchase tax free red dye diesel for any reason," Trump said before signing the executive order, which was brought to the stage by Natalie Harp.

However, according to a statement from the White House, this is a temporary measure. According to the statement, the order directs the Department of the Treasury to defer payment of the federal tax on the use of red diesel on highways for the remainder of the year, without interest or penalties.

In addition, it instructs the Departments of Transportation and Agriculture to facilitate access to the fuel, particularly for farmers in areas of high demand.

The president's decision to sign the executive order was not coincidental. Nebraska has a strong agricultural sector that accounts for 6.5% of its gross domestic product (GDP), the second-highest share in the country after North Dakota.