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Special Fuel Excise Tax on Diesel Fuel
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Petroleum Tax Fact Sheet 200
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The first licensed distributor receiving undyed fuel or undyed kerosene must pay the special fuel excise tax. Minnesota’s law is consistent with the federal dyeing program.
Claim Credit for Taxes Paid
You may receive a credit a credit for tax paid on the following tax-free sales of undyed diesel fuel or undyed kerosene:
- Sales of fuel for residential heating
- Sales of fuel to the U.S. government
- Exports of fuel out of Minnesota for product consigned to this state
On the above sales only, licensed distributors must claim the credits based on the current filing requirements. Unlicensed distributors claim tax-free sales by completing Form PDR-1, Minnesota Motor Fuel Claim for Refund.
All government units, school districts, and bus companies are required to pay the special fuel tax on any low-sulfur, dyed diesel fuel they use in licensed motor vehicles.
Government Units
Government units may obtain a special fuel license from the Minnesota Department of Revenue that allows them to pay the tax directly to Minnesota.
Tax should be paid based on the current filing requirements.
School districts and Bus Companies
School districts and bus companies may also obtain a special fuel license but are strongly encouraged to pay the tax directly to the supplier. Suppliers then pay the tax to Minnesota.
If the supplier is not licensed, they should send detailed sales records of dyed fuel gallons sold for taxable use and submit with payment to their master jobber for reporting on the Special Fuel Tax Return.
Retail service stations must charge the special fuel tax on all sales of undyed diesel fuel and undyed kerosene, except in the following situations:
- Undyed diesel fuel sold for exclusive use in a truck refrigeration unit
- Undyed kerosene sold from a blocked pump (as defined by IRS regulations) and placed in tanks not used to propel a motor vehicle
Receive a Refund of Tax Paid
To receive a refund of tax paid on the above sales, the retail station operator must complete Form PDR-1, Minnesota Motor Fuel Claim for Refund.
Claims must be filed within one year from date of purchase. The postmark date is considered the filing date.
Each claim must cover only one month. All refund claims must be supported by original sales tickets.
For all other undyed fuel sales, the ultimate user is responsible for applying for a refund if the fuel is used for a qualifying off-highway purpose.
Retail service stations and bulk purchasers must maintain complete records for at least 3.5 years.
Records must include:
- Purchases
- Sales and transfers of special fuel
- End-of-month meter readings
- Inventories
Auditors periodically review records to ensure compliance with Minnesota and federal tax laws.
The Minnesota penalty for misusing dyed diesel fuel in licensed motor vehicles is $1,000 or $10 per gallon, whichever is greater. This is consistent with federal law. Violators with repeat infractions will have their penalties multiplied by the number of violations. For example, if five violations have occurred, the fine is $5,000 or $50 per gallon.
The dyed diesel fuel penalty is in addition to any other penalty assessed for nonpayment of taxes.
If you suspect unlawful use of dyed diesel fuel, please report the information by:
