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Legal and Illegal Use of Dyed Fuel
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In a Licensed Motor Vehicle
Some diesel fuel is dyed red to mark it as tax-exempt fuel. The presence of dye makes it easier to find tax cheaters who are trying to avoid paying state or federal excise tax. Dyed fuel may be used only in non-licensed ("off-road") vehicles or equipment, or for specific activities.
It is illegal to use dyed fuel in licensed trucks or other vehicles running on public roads or highways (except for some government vehicles and buses). This type of tax evasion costs several hundred million dollars in lost state and federal excise tax revenue each year.
Those stolen funds reduce the amount of money available for road improvements and highway or bridge construction, which are largely funded by fuel excise taxes. In addition, dishonest truckers or fuel sellers who do not pay the tax are illegally lowering their expenses and may then undercut the prices of their law-abiding competitors.
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The dyed fuel enforcement program began in 1994 and is run by the IRS. Federal and state inspectors are authorized to check the fuel being used in licensed highway vehicles, issue tickets to violators, or assess penalties and tax. (They may use mobile fuel inspection sites to do so.)
The driver is responsible to use legal fuel in the vehicle. If there is any visible dye in your diesel fuel, you generally can't use the fuel on public roads. Mixing taxed (un-dyed) fuel with dyed fuel does not make it legal for "on-road" use; instead, the entire quantity of fuel is subject to penalties if used on public roads.
Take the following precautions when buying fuel:
- Know your supplier. Watch out for cut-rate prices or on-the-spot cash rebates, which may be signs of tax evasion. Buy from companies you know to be reputable.
- Check pump labels. The IRS requires pumps dispensing any dyed fuel to be labeled “DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE” or “DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE”. Do not use these pumps to fuel your vehicle.
- Look at the fuel. Always fuel your vehicle yourself, or watch when your tank is being filled. Check the fuel in the "sight glass" on the fueling hose, if available. You may want to carry a clear plastic container so you can examine a sample of the fuel if you have any doubt.
- Watch for evidence of tampering. Apart from visible dye in the fuel, look for altered pump labels or unreadable receipts.
- Keep receipts. Make sure receipts identify the product and indicate where and when it was purchased. If you plan to claim a tax refund on un-dyed you buy for a tax-exempt use- such as to power a refrigeration unit- you need to get a written statement from the seller that the fuel did not contain visible evidence of dye. (It can be on a receipt, invoice or other written notice.)
Note: If you have any questions or see any evidence of violations, call the nearest IRS office or the Minnesota Petroleum Tax Unit at 651-296-0889.
