Executive Orders on Dyed Diesel
On October 5 and 6, the federal government and the State of Illinois each issued executive orders on the on-road use of dyed (off-road) diesel. The two orders work differently and do not cover the same users. Here is what we know to date:
Federal: Penalties waived, tax is deferred but not forgiven
On October 5, the President signed an executive order directing the IRS to announce it will not impose federal penalties when dyed diesel is sold or used on the highway from October 5 through December 31, 2026. The federal penalty relief is not limited to agriculture. It applies to any highway user.
The order also directs Treasury to defer payment of the federal excise tax that applies to that highway use (about 24 cents per gallon), without interest or penalties. However, the deferral depends on Treasury first determining that it has legal authority under federal disaster-relief law, and it applies only to the extent the law allows. The tax is still owed. The order does not set a date for repayment; Treasury guidance will set it.
The order directs Treasury to explore ways to eliminate the deferred tax, including legislation, but that would likely require action by Congress, which returns in November. As of this notice, the IRS has not issued guidance on how the relief will work, who is responsible for reporting and paying the deferred tax, or when it will be due.
Illinois: State penalties not imposed for "farming and agricultural" use
On October 6, Governor Pritzker issued a statewide disaster proclamation and signed Executive Order 2026-08. The order directs the Illinois Department of Revenue (IDOR) and Illinois State Police not to impose penalties when dyed diesel from bulk storage is sold or used on highways and state roads for "farming and agricultural purposes" through December 31, 2026.
The order addresses penalties only. It does not waive or defer the Illinois motor fuel tax, which is currently about 56 cents per gallon for diesel. Members should assume that tax may still be owed on dyed fuel used on the road unless IDOR says otherwise.
IDOR has been directed to issue guidance on which uses qualify and what records users must keep. That guidance has not yet been released. The order also directs IDOR to request federal penalty relief from the IRS, and directs IDOT to consider extending the Illinois Harvest Permit program into 2027 if shortages continue.
The Governor's disaster proclamation runs for 30 days, while the order's penalty relief runs through December 31. Continued relief may depend on the proclamation being renewed.
Important limits
- Combined exposure: If both taxes are ultimately collected, the potential liability is roughly 80 cents per gallon of dyed fuel used on the road (about 24 cents federal plus about 56 cents state).
- Illinois only: State relief applies only within Illinois. Other states' penalties still apply once a vehicle crosses the state line.
- Narrower state coverage: Illinois relief covers only farming and agricultural use of dyed fuel from bulk storage. Non-agricultural highway use is not covered under the state order, even though federal penalties are waived.
- Fuel quality: The orders address tax penalties, not fuel quality standards. On-road engines require ultra-low sulfur diesel (15 ppm).
What is still unknown
- How "farming and agricultural purposes" is being defined
- Who is responsible for reporting and paying the deferred federal tax and any Illinois motor fuel tax: the seller, the user, or both
- When the deferred federal tax will be due, and whether Congress will act to forgive it
- How enforcement will treat residual dye in on-road tanks after December 31
What this means for IFCA members
Because key details remain unresolved, members should carefully weigh the risks before making any changes to fueling practices.
IFCA is monitoring developments closely, is coordinating with other agricultural stakeholders, and will share additional guidance as soon as it is available.
You can read the full text of the federal executive order and the Illinois executive order online.