Truck Group Warns of Fine Risk Under Federal Dyed Diesel Waiver

Truckers can legally run lower-taxed red dyed diesel on highways under a federal order that also defers federal diesel taxes for the rest of the year, but the North Dakota Motor Carriers Association has warned members that not every state may honor the exemption. President Donald Trump issued the order on Oct. 5, and it covers all trucks, not only farm vehicles, according to the North Dakota Monitor report carried by Yahoo Finance.

The relief comes as diesel stays expensive. AAA put the average North Dakota price on Thursday at $6.04 per gallon, about 22 cents under the national average and about $2.52 higher than a year ago.

What it means for truckers and carriers

Dyed diesel is normally restricted to off-road machines such as tractors and combines. A truck found with red fuel during an inspection usually draws a penalty. The federal tax on regular diesel is 24 cents per gallon, so that is the most a trucker could save per gallon at the federal level by switching.

The carrier association listed several problems with making the switch:

• Some states may decline to recognize the federal enforcement exemption.
• Dyed diesel is hard to find at the pump.
• Red dye can stay in a truck’s fuel system after the order runs out, which could leave the truck exposed to the dye ban once enforcement resumes.
• Deferred diesel taxes could still be collected later, although the group called that unlikely.

It is not clear how many truckers have moved to dyed diesel since the order took effect.

Minnesota keeps its ban

Minnesota has not joined the federal exemption, so dyed diesel remains banned on its roads. That split caused trouble for Ben Bakko, who farms near Walcott in southeast North Dakota and also works land across the Red River in Minnesota. To avoid a fine, he kept clear diesel in his trucks until he had hauled his Minnesota sugar beets, and switched to the cheaper fuel only after moving to his North Dakota fields.

Bakko said the break helped, since beets take more truckloads than corn, but it falls well short of offsetting a price rise of more than $2 per gallon since last fall’s harvest. He uses about 30,000 gallons of diesel a year. “This diesel problem, these prices, are not going to go away by the end of the year,” he said.

North Dakota’s own tax break

North Dakota moved first. On Sept. 29, Gov. Kelly Armstrong allowed red diesel for hauling grain on highways and other on-road farm work. The state taxes regular diesel at 23 cents per gallon and dyed diesel at 4 cents, a possible savings of 19 cents per gallon until the order expires Nov. 30.

The effect is small, said Matthew Gammans, an assistant professor of agribusiness and applied economics at North Dakota State University. Highway driving makes up only about 5% to 15% of a typical farm’s diesel use, and the field equipment that burns most of the fuel could already use the dyed product. In a report last month, he estimated the state order could save corn and soybean farmers up to $850,000 this fall. Many farms also cannot fuel their trucks from on-farm bulk tanks, which narrows the benefit further.

The state Department of Transportation takes in about $5.4 million a month from diesel taxes, according to the governor’s office. Tax Commissioner Brian Kroshus said his department has no forecast of the revenue impact, and that lower oil prices, rather than executive orders, are what would bring real relief.

Why diesel spiked

Prices jumped just as harvest picked up, partly because of a September attack on a major Mideast pipeline, the report said. The U.S. war with Iran and other conflicts have limited fuel shipments since February. Calvin Benson of the North Dakota Farm Bureau said a longer-term outcome could be policies that bring more diesel refining to the United States.

What happens next

North Dakota’s order ends Nov. 30, and the federal tax deferral runs through the end of the year. Separately, the U.S. Department of Agriculture has set aside $8 billion under its Harvest Fuel Relief program to compensate farmers for high diesel prices but has not said how the money will be split. Gammans said he expects an announcement this month and that a formula based on fuel use could steer more money to rice and cotton growers in the South.

Source: Yahoo Finance