Trump's 'Tax-Free' Red Diesel Order Only Defers the Tax, and Most States Still Ban It on Roads, Expert Says

President Donald Trump billed his order easing federal restrictions on red diesel for road use as tax relief from near-record prices. The White House's fact sheet says it defers, not removes, the federal tax. GasBuddy fuel analyst Patrick De Haan said 'in most states running red on the road is still illegal.'

Drivers who switch could still owe 24.4 cents a gallon (about 4.88p per litre), if that tax comes due, De Haan said. Only 10 of 50 states had eased their road bans by early October, ClearView Energy Partners found. The IRS had not yet announced the promised federal penalty relief by 13 October.

What the Order Changes for Drivers

Trump signed the order on Monday, 5 October, at a Nebraska campaign rally. He admitted not knowing what the fuel was, but promised to 'allow anyone to purchase tax-free red-dye diesel for any reason.' The order directs Treasury to determine within five days whether it can legally defer certain taxpayers' federal excise-tax payments for fuel used from 5 October to 31 December, without interest or penalties. Treasury must also explore ways to eliminate the obligation to pay the deferred tax. De Haan's post below asks whether switchers will face a later bill.

Normally, the IRS can impose a penalty of at least $1,000 (£757) on anyone who knowingly uses red diesel on a public road. The order gave Treasury five days to direct the IRS to announce that it would not impose the penalty for highway use through 31 December. A White House official quoted by CBS News said drivers would pay the postponed tax only if the IRS collects it. Britain tightened its own rules in 2022, limiting red diesel mainly to farming, rail and fishing.

Why State Laws Limit the Savings

Washington's order changes federal rules alone. States that have acted include Alabama, Arkansas, Indiana, Louisiana, Missouri, Nebraska, North Carolina, North Dakota, Oklahoma and Texas. Louisiana's relief covers only farmers and timber harvesters. De Haan warned that a trucker crossing from one of those states into one that still enforces its ban could run into trouble. The administration says it is now working with governors to bring more states on board.

White House estimates put savings above $100 (£76) per fill-up where states follow suit. The federal tax deferred on a 250-gallon (946.35-litre) fill amounts to about $61 (£46). Farmers already buy red diesel tax-free, and analysts warn that, in certain cases, new highway users could squeeze their supplies mid-harvest. North Dakota Farmers Union president Matt Perdue welcomed Trump's order and a state measure but told Newsweek they 'fall well short of addressing the full impact of high diesel prices.'

What It Means for Diesel Prices

Diesel averaged $6.32 a gallon (£1.26 per litre) on Tuesday 6 October, according to motoring group AAA. Before the Iran war began in February, it cost $3.76 (£0.566 per litre). Gulf Oil adviser Tom Kloza told Newsweek the order 'really just buys some time.' He said it adds no fuel to the market.

Todd Spencer, who heads the Owner-Operator Independent Drivers Association, told Newsweek wider red diesel use 'will provide minimal relief.' Each $1 per-gallon (£0.199 per-litre) rise costs his members about $400 (£303) a week. Kloza expects supplies to face their hardest test in midwinter, because heating oil is nearly identical to diesel.