If your company operates off road, or if you run a reefer vehicle that utilizes a separate tank, you should evaluate the pros and cons of using dyed diesel to fuel your fleet. Dyed diesel helps minimize your expenses by deducting road fuel taxes from your fuel purchases and avoids the time-consuming process of filing for fuel tax refunds. Fleet fuel cards can provide access to dyed diesel and provide tools to simplify use.
What is dyed diesel?
Dyed diesel, also known as off road diesel, is used by companies that operate off road equipment or use separate tanks to run specialized non-powertrain equipment. Chemically, it isn’t different than regular diesel, and it provides the same performance for your vehicles. The only difference is that the government adds red dye to ensure that it is only used in off road fueling.
Where can we find dyed diesel?
Many truck stops, cardlocks, and a few gas stations offer the product. While gas stations and truck stops offer this product to everyone, cardlocks like Pacific Pride and CFN cater to commercial industries by offering their fuel card customers access to dyed diesel at wholesale-based pricing. We created a list of off road diesel locations. You can also use the CFN app to look up sites by using the “dyed diesel” category under filters. This will create a map of nearby locations and give you turn-by-turn directions to the site of your choosing.
How much would we save?
Since off road diesel does not include fuel taxes in your purchase, this is an automatic savings that applies to each gallon. The total savings that comes with utilizing this strategy depends on your state’s total diesel taxes, and ranges anywhere from 33 cents per gallon to 96 cents per gallon. To see a full breakdown of your state’s taxes and fees, please refer to our fuel taxes by state resource page. This will give you an idea of how much you will save at the pump.
How do we qualify?
There are two ways to qualify: Firstly, if you have vehicles or specialty equipment that only operate off road. This can include construction equipment, agricultural equipment, generators, on-site heaters, and refrigerators.
You can also qualify if your vehicle has a separate tank to run additional equipment. This is extremely common in reefer trucks and other specialized vehicles. If the separate tank only supports the additional equipment and does not actually run the motor, you can use off road diesel in the second tank.
How do we get started?
Before you can begin taking advantage of these tax savings, you must fill out the appropriate forms. This process varies greatly by state, but you can consult your state’s Department of Transportation to get started. Once you have submitted these forms, you should consider the best way to implement the program. If you have a separate tank, you can refuel at any station that carries off-road diesel. If, however, you work on a construction site or farm, it may be better to use an on-site tank. This ensures that your vehicles never travel on state roads even when they need to refuel. Keep in mind that most states have a 25 mile allowance for using off road diesel on the road. That means that your vehicles should be able to travel up to 25 miles from your worksite to refuel. You should check your state laws for exact regulations, but this can be an option for companies that still want to refuel at local gas stations.
What are the fines for misusing off road diesel?
Unqualified vehicles that are found with red dye stains in their tanks are penalized for using this special fuel on state roads. While the severity of the fine depends on the state and the number of offenses, the fines start at $1,000. After multiple offenses, the state can even recommend jail time as an added punishment. As a result, it is not worth trying to cheat the system to get around fuel taxes, as just getting caught once offsets the savings of hundreds of gallons.
Have the fuel delivered.
If you don’t want your employees and equipment to go off-site to get dyed diesel, you can opt to bring the fuel to you. Some companies have tanks on site and use tankers to replenish when they run out. However, for companies that want more flexibility, there is another option. It may be best to utilize 100 gallon tanks installed in the back of pickup trucks. These can drive easily between the site and the gas station, rather than driving equipment to the nearest provider.
Alternatively, you can hire a fuel provider who will bring a bobtail fuel tanker to your work site. They can refuel your entire fleet at once and bill you for the total fuel in a single purchase. This can be more convenient than driving vehicles to and from the nearest gas station, but you should ask potential providers about the total cost including fees.
Does off road diesel go bad or expire?
If you are storing off road diesel in an on-site fuel tank, you want to be mindful of how long it sits in the tank. If the fuel is untreated, it will stay fresh and usable for a year. Some specialty fuels are treated with biocide to prevent biological growth from spoiling the fuel. If biocide is added, the diesel can last for two to three years. After two to three years, the fuel begins to lose its brightness when sampled, and you should test whether the fuel is still good before putting it in your vehicles.
What if I don’t want to use off road diesel?
If you don’t want the hassle of using off road diesel, you can instead file for refund or credit under IRC § 6421. This allows you to request a refund for any highway or road maintenance taxes you’ve paid when purchasing fuel. To claim a credit for the federal tax, you must include Form 4136, Credit for Federal Tax Paid on Fuels, with your usual tax return forms. This form will include all of the diesel purchases that you have made throughout the year, so save your receipts and track your fuel spending (or use a fuel card to easily create this report).
Use dyed diesel as heating oil.
If you have a furnace that runs on heating oil, you are likely able to use dyed diesel instead. Check your manufacturer’s regulations to confirm before adding the fuel, but you should be able to use dyed diesel to operate your heater or furnace without sacrificing any of the performance. If you can use these fuel types interchangeably, make sure you are getting the dyed version to save on fuel taxes, since the fuel will not be used on the road.
Conclusion
For companies that utilize off road equipment, dyed diesel is an easy way to saving money upfront, but it does take extra time and effort to take advantage of this program. Ultimately, your team will have to decide between taking extra time to procure the discounted fuel, or the time-consuming process of filing for a refund.
