Arizona farmers and ranchers now have temporary federal relief that can lower diesel costs during this high-demand period. In response to President Trump’s October 5 Executive Order on Emergency Tax Relief on Diesel Fuel, the IRS announced it will not impose penalties when dyed diesel fuel is sold for use or used on highways nationwide.

The relief is retroactive to October 1, 2026, and runs through December 31, 2026. It applies to anyone who sells dyed diesel or uses it for highway purposes.

Normally, dyed diesel is tax-exempt only for off-road uses such as on-farm equipment. Using or selling it for highway vehicles triggers federal excise tax, with liability generally falling on the retail seller or the vehicle operator (for example, fuel drawn from an on-farm storage tank). During this relief window, those ordinary collection and enforcement rules are suspended.

 

What This Means for You

  • No federal inspections of on-road dyed diesel use.
  • No requirement to keep records proving eligibility for the relief.
  • No penalties for the federal excise tax on dyed diesel used in highway vehicles, including failure to make semi-monthly deposits or maintain certain records.
  • Sellers and distributors have no obligation to investigate or document the ultimate end-use of dyed fuel sold during the relief period.

 

If you receive a penalty notice you believe is covered by this relief, follow the instructions on the notice or contact the IRS for assistance. The IRS expects to issue further guidance on postponing payment of certain related taxes under federal law and will explore ways to eliminate any deferred amounts. That guidance will also address Form 720 and other relevant forms.

This is federal relief only. Arizona has taken complementary action. Governor Hobbs issued an executive order directing state agencies to deprioritize enforcement of dyed diesel restrictions for agricultural operations through December 31, 2026, and providing related weight-limit flexibility for ag hauling on non-interstate highways.

Diesel is a major operating cost for the families who grow and move Arizona’s food and fiber. Every cent per gallon matters when you’re running harvest trucks, hauling cattle, or keeping equipment moving. Arizona Farm Bureau encourages all members and producers to talk with fuel suppliers about accessing this temporary relief and to watch for additional IRS guidance.

Stay informed at azfb.org and through your county Farm Bureau. Questions on how this intersects with Arizona rules? Reach out to Arizona Farm Bureau Government Relations or your local county organization.