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The Red Diesel Highway Use Exemption Hot-Take

By
Oct 26, 2026

The risks of using red dyed diesel in on-road vehicles.

Through December 31, 2026, Colorado won’t ticket you for running red diesel on the highway, and the IRS won’t penalize you either. But penalty relief isn’t tax relief. The federal tax is deferred, not forgiven, and Colorado hasn’t said a word yet about its own state fuel tax. Your temporary savings may be a temporary relief with a tax bill in the not too distant future.

I’ve had more calls about red diesel on the highway in Colorado this month than in the last ten years combined. I get it. Diesel crossed $6 a gallon here in October. When a cheaper option shows up on the news, everybody wants to know if they can use it.

Here’s the deal. Two executive orders landed in the same week. President Trump signed one on October 5. Governor Polis signed Colorado’s version on October 9. Together, they mean you can put dyed fuel in a highway truck right now without getting pulled over for it.

That part is real. What worries me is that as of today, the pause on enforcement doesn’t erase the tax liability. I don’t want any of my customers saving 24 cents a gallon this fall and writing a bigger check next spring.

So let me walk you through what these orders actually say, where the catches are, and how I’d handle it if it were my fleet. Quick note before we start: I’m a fuel guy, not a tax guy. Run your plan past your accountant before you switch over.

Executive Order 14435 – Deferring Excise Tax Liability and Encouraging Local States to Allowing Red Diesel for Highway Use

The President’s order is called Emergency Tax Relief on Diesel Fuel, Executive Order 14435. On its own, it didn’t change anything at the pump. It told the Treasury Department to act. The IRS followed through with two announcements.

The federal order waives IRS penalties for highway use of red diesel through December 31, 2026. It delays the 24.4 cent federal excise tax. It does not cancel it.

The first came October 14. The IRS said it won’t penalize anyone for selling or using dyed diesel on the highway. That relief runs back to October 1 and lasts through December 31. No federal fuel inspectors will be checking tanks during that window. Normally, getting caught means $1,000 or $10 a gallon, whichever is more. That’s off the table for now.

The second came October 21. The IRS said it won’t come after you for skipping the Form 720 filing or the records tied to that dyed fuel use. It also said it won’t make you rebuild those records after the year ends.

Now here’s the piece people skip over. The tax itself still exists. The order says the government will defer it and explore ways to get rid of it. Exploring isn’t the same as doing. Most fuel industry folks I trust say wiping out that tax would take an act of Congress. Congress would also have to backfill the Highway Trust Fund. I wouldn’t bet my fleet budget on that happening.

I’m not the only fuel guy saying this. Fox21 News in Colorado Springs ran a report from The Hill on how the fuel industry reacted. SIGMA and NATSO, the groups representing independent fuel marketers and truck stops, told their members there’s “limited upside.” Their two big reasons? The tax is still owed, and leftover dye lingers in tanks and fuel systems. Energy Marketers of America told stations to proceed with caution, since deferral isn’t forgiveness.

Governor Polis’ Order D 2026 020 – Don’t Inspect for Red Dyed Diesel for On-Road Vehicles

Short Answer: Colorado Executive Order D 2026 020 tells the Colorado State Patrol and the Department of Public Safety not to inspect, cite, or enforce the state’s dyed diesel ban on highways through December 31, 2026. It does not change Colorado’s fuel tax law.

Colorado law normally bans dyed diesel in any vehicle on a public highway. Getting caught is a Class B traffic infraction. According to the Colorado Department of Revenue, the first ticket runs $500 plus a $156 surcharge. A third one inside 12 months jumps to $5,000 plus surcharge. Those fines are paused through the end of the year.

The Governor’s order does three things:

  • Pauses dyed diesel enforcement. No inspections, citations, or other action based only on red fuel in a highway vehicle, through December 31.
  • Lets fuel haulers carry heavier loads. CDOT can issue overweight permits so tankers like ours haul more fuel per trip, as long as bridge, axle, and safety limits are still met.
  • Asks the EPA for a 2027 summer gas waiver. That one’s about gasoline, not diesel, so I’ll leave it alone here.

Did you notice what’s missing? The order directs the people who write tickets. It doesn’t direct the Department of Revenue, the folks who collect fuel tax. And that difference could catch a lot of people offguard.

D-2026-20 Taking Action on High Gas Prices in Colorado

The Governor’s office laid out the full plan in its announcement of the executive order. Denver TV covered it the same weekend. Denver7 reported Colorado diesel averaging about $6.28 a gallon, the highest AAA has ever tracked here. CBS Colorado in Denver walked through what the order means for drivers across the Front Range.

The Catch: Tax You May Still Owe Later

Short Answer: Red diesel used on Colorado highways this fall could carry two tax bills later: the deferred 24.4 cent federal excise tax and Colorado’s own state fuel tax. Neither has been forgiven. Set money aside for both until the government says otherwise.

This is the part I’d circle in red. Pun intended. 

The federal tax is a balance, not a savings. Deferred means delayed. If Congress doesn’t act, that 24.4 cents a gallon could come due in 2027. Say you run 5,000 gallons of red through your trucks between now and New Year’s. That’s about $1,220 in federal tax you may owe down the road. The bigger your fleet, the bigger that federal tax number will be.

You might be the one who owes it. The IRS says the tax normally falls on whoever sells dyed fuel at retail. But if you fill your trucks from your own bulk tank, the IRS points at the vehicle operator. For local fleets, farms and construction outfits, that means you.

Colorado’s state fuel tax is a separate question. Red diesel is exempt from Colorado fuel tax because it’s meant for off-road use. Colorado’s tax applies to fuel that powers a vehicle on public roads. The Governor’s order paused the tickets. It didn’t touch the tax. As of this writing, I haven’t seen any guidance from the Colorado Department of Revenue saying the state tax is waived. Until they say so, I’m assuming it could still be owed.

The paperwork break doesn’t erase the bill. The IRS says you don’t have to keep federal records on this dyed fuel use. That’s a break on paperwork. It isn’t a break on the tax itself. And the IRS says nothing about what Colorado expects.

IFTA carriers have extra homework. If you run interstate and file IFTA returns, your fuel-use reporting doesn’t go away. Check with your IFTA contact before you put a single gallon of red into those trucks.

My advice is simple. Treat the money you save at the pump like it’s already spoken for. Park it in an account until the IRS and Colorado tell us how this ends. If it gets forgiven, great. You’ll have a nice surprise in 2027 instead of a nasty one.

Other Pitfalls I’d Watch For

Beyond taxes, the biggest risks of running red diesel on the highway are leftover dye after December 31, different rules across state lines, and dyed fuel that isn’t ultra-low sulfur.

Red dye hangs around. This is the one that’ll bite people in January. Dye clings to tanks, lines, and filters long after you switch back to clear fuel. Colorado’s normal rule is that any visible dye disqualifies fuel from highway use. The IRS says it’s thinking about a grace period for leftover dye. Nothing’s final yet. Colorado hasn’t said anything about it either.

Mixing red and clear makes it all red. Top off a half tank of red with clear, and the whole tank still counts as dyed fuel. Same goes for your bulk storage tank.

Colorado’s pause stops at the border. The Governor’s order only covers Colorado highways. Every neighboring state sets its own rules, and they don’t all match. A truck that’s fine in Brighton could get written up across the line. If your routes leave the state, check each one before you go.

Not all red fuel is the same. Most dyed diesel sold in Colorado today is ultra-low sulfur, the same 15 ppm fuel you burn on the road. But dyed heating oil and some older stored fuel can run much higher in sulfur. High sulfur fuel can foul a diesel particulate filter and ruin a catalytic converter fast. If you’re not sure what’s in a tank, a diesel sulfur content test will tell you.

Do not overbuy dyed diesel. Red diesel you’re still holding on January 1 goes back to being off-road only. Buy what your trucks will actually burn on the highway by mid-December. Anything extra should be fuel your off-road equipment will use anyway.

Watch your off-road supply. Red diesel moves through farm and job-site channels, not truck stops. If highway demand pulls on that supply, farmers and contractors could feel the squeeze. If you rely on red for your equipment, keep your regular deliveries on the calendar.

How I’d Handle It If It Were My Fleet

If you use red diesel on Colorado highways before December 31, log your gallons, set aside the tax savings, stay in-state, confirm the fuel is ultra-low sulfur, and plan to switch back to clear fuel well before January 1.

A basic checklist to follow when considering using red diesel in on-road vehicles

  1. Call your accountant first. Ten minutes on the phone beats a surprise bill. Ask how they want you to handle the deferred federal tax and Colorado’s fuel tax.
  2. Keep a simple log anyway. The IRS says you don’t have to. I’d do it regardless. Write down the date, truck, and gallons every time red goes into a highway vehicle. If a bill shows up later, you’ll know exactly what you owe.
  3. Set the savings aside. Figure about 24 cents a gallon for the federal tax, plus whatever Colorado ends up asking for. Don’t spend it until both are settled.
  4. Keep red trucks in Colorado. Assign red fuel to trucks that stay on in-state routes. Keep clear fuel in anything crossing state lines.
  5. Check the sulfur. Make sure your red fuel is ultra-low sulfur before it goes into a truck with emissions equipment. Your bill of lading should say so. If it doesn’t, test it.
  6. Start your switch-back early. Stop adding red to highway trucks by mid-December. Run them low, then refill with clear fuel a couple of times before New Year’s to dilute what’s left.
  7. Watch for new guidance. The IRS has promised more rules on the deferral and leftover dye. Colorado could still weigh in on state tax. Things may change before December 31.

The Bottom Line

These orders give Colorado fleets a little breathing room during a rough stretch. I’m glad for that. But the savings at the pump are only real if they don’t come back as a tax bill in 2027.

If you’ve got questions about your red diesel supply, need a load tested, or want help planning your switch back to clear fuel, give us a call. We deliver both dyed and clear diesel across the Denver metro and Front Range. We’ll help you figure out what makes sense for your trucks.

Contact Fleet Core to talk through your fuel plan

This article is general information, not tax or legal advice. Fuel tax rules are changing quickly. Talk with your tax professional before changing how you fuel highway vehicles. Information current as of October 23, 2026.

Frequently Asked Questions About Red Dyed Diesel on Colorado Raods

Is it legal to use red diesel on the highway in Colorado right now?

Through December 31, 2026, Colorado’s Executive Order D 2026 020 directs state officers not to inspect, cite, or enforce the dyed diesel ban on Colorado highways. The IRS has also waived federal penalties for the same period. The underlying taxes have not been waived.

Will I owe taxes later for using red diesel on the highway?

Possibly. The 24.4 cent per gallon federal excise tax is deferred, not forgiven, and could come due after 2026 unless Congress eliminates it. Colorado has not announced any waiver of its state fuel tax on highway use of dyed diesel.

Do I need to keep records of red diesel used in my highway trucks?

The IRS says it won’t require federal records or Form 720 reporting for dyed diesel used on highways between October 1 and December 31, 2026. Many fleets still keep a simple gallons log in case the deferred tax or Colorado’s state tax comes due.

What happens if there's still red dye in my tank after December 31?

Once the relief ends, any visible dye in a highway vehicle can again lead to penalties. The IRS has said it is considering a grace period for leftover dye, but no rule is final. Running tanks low and refilling with clear fuel before January 1 lowers the risk.

Can I drive into another state with red diesel in my truck?

Colorado’s enforcement pause only applies on Colorado highways. Each state sets its own dyed diesel rules, so check every state on your route before crossing a border with dyed fuel.

Is red diesel the same quality as regular diesel?

Most dyed diesel sold in Colorado is the same 15 ppm ultra-low sulfur fuel as on-road diesel, just untaxed and dyed. Dyed heating oil and some older stored fuel can be higher in sulfur, which can damage emissions equipment, so confirm the sulfur level before using it on the road.

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