Dyed diesel is non-exempt and used for non-taxable purposes such as agriculture or construction equipment. The use of dyed diesel is prohibited in highway vehicles.
However, dyed diesel is not exempt from the Environmental Response Surcharge fee or perfluoroalkyl and Polyfluoroalkyl Substances Fee. This fee is reported and remitted on the fuel distributor's report. For more information on fuel distributors, visit the File & Pay web page. For more information on this surcharge, visit the Fees & Surcharges web page.
The federal government requires the dyeing of untaxed diesel fuel for two reasons:
To help reduce tax evasion by identifying fuel on which excise taxes have not been paid
To help reduce air pollution by identifying fuel not suitable for use in highway vehicles
Misuse of Dyed Diesel
The vehicle operator is responsible for the proper fueling of the vehicle. Any visible dye in the diesel fuel disqualifies that product from use in a highway vehicle. The use of dyed diesel in vehicles is subject to State and Federal penalties.
Federal penalties are specified in the Internal Revenue Code. IRS penalties for misuse of dyed diesel are $1000 or $10 per gallon for the first violation. See IRS Publication 4941 for more information.
See below for Colorado penalties:
A class B traffic infraction.
- First infraction within a 12 month period: $500 plus surcharge of $156.
- Second infraction within a 12 month period: $1,000 plus surcharge of $312.
- Additional infractions within a 12 month period: $5,000 plus surcharge $1,560 per additional infractions.
And is subject to audit by the department regarding payment of motor fuel tax.
See Colorado Statutes 42-4-1414 and 42-4-1701 (4)(a))(I)(N).
Be aware that mixing dyed fuel with undyed fuel will make the whole quantity unsuitable for highway use and is subject to penalties and surcharge by the Colorado Statutes.
Follow these tips to help ensure you do not inadvertently use dyed diesel in highway vehicles:
- Beware that severely discounted prices or other creative rebates that do not appear credible may be an indication of tax evasion.
- Deal only with trustworthy companies that you know from experience or reputation.
- Keep your receipts - Make sure all receipts identify the product and indicate where and when it was purchased.