High diesel prices and tight supply have led to temporary federal and Iowa relief that lets certain users put dyed (red) diesel in highway vehicles without the usual penalties. The rules are not identical, and they are temporary. Here’s a clear summary aimed at Iowa farmers and those hauling agricultural products.
Federal Relief (Nationwide)
On October 5, 2026, President Trump signed Executive Order 14435, “Emergency Tax Relief on Diesel Fuel.” The IRS implemented it with IR-2026-122 (October 14) and IR-2026-125 (October 21).
Key points for October 1 – December 31, 2026:
- No federal penalties when dyed diesel is sold for highway use or used in diesel-powered vehicles on public highways.
- No federal inspections of on-road dyed fuel use.
- No requirement to keep special records solely to prove eligibility for this relief.
- Sellers and distributors do not have to investigate or document the end use.
- Reporting relief: No need to file or report the related § 4041(a) liability on Form 720 solely for this use, and no requirement to reconstruct those records later.
- The relief covers dyed biodiesel mixtures as well.
Important limitations:
- This is primarily penalty and enforcement relief. The underlying federal diesel excise tax (24.4¢ per gallon) is generally deferred rather than fully forgiven. Further guidance on payment timing is still expected, and only Congress can permanently eliminate a statutory tax.
- Federal relief does not override state rules.
- EPA ultra-low-sulfur (15 ppm) requirements still apply.
- After December 31, 2026, normal federal rules return unless extended. Residual dye left in tanks could create risk once enforcement resumes (the IRS is considering a grace period).
Iowa’s Response (More Targeted, Longer Duration)
Governor Kim Reynolds issued a disaster proclamation (issued/expanded around October 5–7, 2026) that provides state-level relief through February 4, 2027.
Who qualifies in Iowa: Only motor vehicles hauling specific agricultural products, including:
- Soybeans, corn, hay, straw, silage, stover
- Distillers grains, soybean meal
- Livestock and livestock feed
- Fertilizer (dry, liquid, and gas)
- Manure (dry and liquid)
- Other farm products described in Iowa Code § 554.9102(1)
Where it applies: All Iowa highways and public roads, including interstates.
What is suspended for qualifying hauls:
- State penalties under Iowa Code §§ 452A.74 and 452A.74A
- Related state fuel-tax obligations (including certain sales/use tax and special fuel tax) during the proclamation period
Key differences from federal relief:
- Iowa’s relief is limited to the listed agricultural commodities. Non-ag or non-qualifying on-road use remains prohibited and subject to normal Iowa penalties and taxes.
- Iowa’s window runs longer (into early February 2027) than the federal window (ends December 31, 2026).
- The Iowa Department of Revenue has indicated that the tax suspension is largely a deferral for sales/use tax purposes. Use tax may be due after the proclamation expires, so keep good records (fuel receipts, invoices, and logs showing gallons and qualifying use).
Practical Tips for Farmers and Ag Haulers
- Match the rules to your situation. If you are hauling one of the listed Iowa agricultural products on Iowa roads, you generally get both federal penalty relief (through year-end) and Iowa penalty/tax relief (through early February 2027). For non-qualifying loads in Iowa, only the federal penalty relief applies until December 31—and Iowa can still enforce its rules.
- Document qualifying use. Even though federal recordkeeping is waived for the relief period, Iowa guidance suggests keeping receipts, purchase records, and evidence of the commodity hauled. This will help if use tax is later assessed or if questions arise after the proclamation ends.
- Plan for the end dates.
- Federal penalty relief ends December 31, 2026.
- Iowa relief for qualifying ag hauls ends February 4, 2027.
After those dates, normal rules return. Consider how you will transition fuel in tanks that may still contain dye.
- Interstate travel. Other states have their own (often narrower or shorter) rules. Federal relief does not protect you from another state’s enforcement. Check the rules before crossing state lines.
- Sellers and suppliers. During the federal relief period, sellers are not required to verify end use for federal purposes. In Iowa, document sales carefully and consider using appropriate exemption certificates where relevant so the end user bears responsibility for any later use-tax reporting.
Bottom Line
For Iowa farmers and those hauling the listed agricultural products, the combined federal and state actions provide meaningful short-term flexibility and cost relief during harvest and related transport. The relief is temporary, limited in scope on the state side, and does not erase all tax obligations. Keep records, watch the expiration dates, and confirm current guidance with the Iowa Department of Revenue or your tax advisor before relying on it for significant volumes.
This is a general summary based on publicly available federal and Iowa guidance as of late October 2026. Rules and administrative interpretations can change. Always verify the latest official information from the IRS, Iowa Department of Revenue, and Iowa DOT before making operational decisions.
