Recent state and federal actions aimed at providing relief from high fuel costs have raised questions for Ohio farmers. On this Legal with Leah, Ohio Farm Bureau Associate General Counsel Leah Curtis breaks down changes to Ohio’s fuel tax, recent federal guidance on dyed diesel and what farmers need to know about the rules still in place.
Ryan Matthews: Fuel costs continue to be a major concern for Ohio farmers, especially during harvest. Recent actions at both the state and federal levels have brought some relief, but they’ve also raised questions about what folks can and cannot do. Leah Curtis, associate general counsel for Ohio Farm Bureau joins this Legal with Leah to explain these policies, where things currently stand, and what farmers need to know.
Ryan Matthews: Good to see you, Leah!
Leah Curtis: Good to see you, Ryan.
Ryan Matthews: Leah, let’s start with the state level. Back in September, we saw Governor DeWine sign a 90-day state fuel tax waiver. Can you tell us what that means and then how does that affect our farm families?
Leah Curtis: So the Legislature passed and Governor DeWine signed a waiver of a collection of the majority of the state excise taxes on both gas and diesel. There is still a slight collection of, I think it’s about a one one hundredth of a cent. That’s to help with administration because of course there are a lot of technical changes that have to happen to kind of allow for all this to work correctly through the systems of the tax department. But what that meant was the state tax that we typically pay on our gas and diesel are removed for on-road products. For a farm impact, the diesel and the fuel that you are buying in order to take things to markets, the livestock barn to the elevator, et cetera, that fuel no longer has a state tax on it during the time of this 90-day waiver.
Ryan Matthews: Now, I know some drivers may have noticed that prices at the pump haven’t dropped the same at every single gas station. So can you explain how fuel tax is collected and why we might be seeing some of those differences at different pumps?
Leah Curtis: Sure. So fuel tax is actually paid by what we call the rack seller or the retailer. So essentially, your gas station is paying for that tax. And then they’re passing it on to us as consumers within the price. And that’s why you always see, unlike sales tax, gas tax is baked into the actual price that you see on the pump. So gas stations would have had gas on hand when this was signed. They typically get gassed about maybe once a week. So they’d already paid the tax on that. And so there was some variability of, of how this got kind of implemented and the bill was written to kind of allow for that and knowing that that would happen. Keep in mind, you know, gas is, and diesel are still just market commodities; their prices still fluctuate even without the tax, you know, just as always that price fluctuates. And in addition, there is still federal excise tax on our fuels. So there is an 18.4 cent tax federally for gasoline and 24.4 cents for diesel federally.
Ryan Matthews: I think it’s just been some good insight to see how many factors actually play into that price that we see at the gas station and just understand that it’s also one of those markets that just have a lot of volatility. Now another big topic that has come out of this is dyed diesel. Can you explain to us the difference between regular diesel and dyed diesel and why are restrictions on when and where it can be used.
Leah Curtis: Regular diesel we’re going to use to refer to taxable diesel, that’s diesel that we pay taxes on, we buy it at typical pumps at our typical gas stations. Dyed diesel has both a dye added to it, a red dye, and then it has some chemical additives as well that can identify it as non-tax diesel. So if there was a situation where a vehicle had it, their tank could be tested, you’d able to tell if that was regular diesel or dyed diesel. The dye in the chemical residue can sometimes remain in the tank even after the fuel has been used and so the major difference is, of course, that you pay tax on diesel and you don’t pay tax in dyed diesel. We have seen a lot of major fuel retailers warning some of their members or asking to use caution as far as putting dyed diesel into regular diesel pumps. Because again, there is a concern that that dye or chemical residue could remain. It’s not clear if it would or wouldn’t, but there is some concerns around that.
Ryan Matthews: Can you tell us, what could happen if a farmer used diesel in an on-road vehicle without meeting those legal requirements and are there any penalties or other concerns they should be aware of?
Leah Curtis : So again, dyed diesel is permitted only for off-road applications, and we mainly hear that referred to as things like farm equipment and construction machinery in particular. Remember that the gas tax under Ohio law and for the most part in federal law is used for road maintenance and transportation. So the gas taxes attacks where you pay for the fuel that puts you on the road, and then that tax pays for the roads. It’s kind of a direct tax payment, right? So this is part of why dyed diesel is not taxed. It’s intended for vehicles that are not on the roadway. They’re not causing wear and tear on the roadways because they’re not being used on the roadways. There are both state and federal laws that prohibit the use of dyed diesel on roadways and in both cases, the penalty is generally $10 per gallon or $1,000, whichever is greater. So it’s a fine, you could be, as an individual, subject to penalties at both the state and federal level for the same occurrence because they are separate taxes and they’re separate laws. And there are also penalties for sellers who sell dyed diesel knowing that it will be used in a taxable manner. So it is kind of at both levels, both seller and user level, that it could be a concern.
Ryan Matthews: I’m going to double tap on both of those levels. So the administration recently took action to provide some flexibility on dyed diesel through an executive order. And now we’ve seen some additional guidance from the IRS. Can you talk about what has exactly changed on the federal level?
Leah Curtis: So at the federal level, the executive order allowed for kind of three things, so deferral of the excise tax, that’s the federal gas tax, potentially the use of dyed diesel for road use, and then potential forgiveness. They’re kind of the three highlights. So number one, deferral of the tax means that people do not have to pay the tax immediately or at their regular, you know, like quarterly deadline. So they will have more time to pay taxes on diesel or gas. And the IRS also will not be charging any interest or penalties for any late payments of federal excise taxes. Typically, to remove a tax, there has to be a legislative act. So Congress would have to kind of say like we’re exempting the tax or whatever. That’s why we’re seeing this referred to as a deferral. That’s what’s within the order, the power of the executive to do. It also directed the IRS to issue a waiver for dyed diesel prohibitions. The IRS did issue an order last week, and it announced that it would not be testing or enforcing for off-road dyed diesel use during the time that the order was in effect. So essentially that staff has been redirected to other situations and issues, and they’re not going to be largely doing any enforcement relative to dyed diesel. The EO did also ask for Treasury to explore tax forgiveness options for the excise tax, including whether legislation might be possibly needed and it has set this time period for all of these provisions to be Oct. 5 through Dec. 31. That’s kind of the situation at the federal level, but keep in mind, we do still have state issues to deal with as well.
Ryan Matthews: And I want to talk about that. As you mentioned, Ohio has its own laws surrounding dyed diesel. So how does that federal action affect what farmers can legally do here in the state? And can you talk about those state laws as well?
Leah Curtis: Sure. So as we already talked about, the state has its own prohibition against the use of dyed diesel on roadways, and the state had not taken any action relative to its own laws or enforcement. The federal action does not affect what states do, and that’s why you’re seeing lots of different states do lots of things relative to gas and diesel at this time. So we do not have any change from the state as it goes to our dyed or prohibitions, and the other thing I just wanna highlight is we have had some questions that have come in about some kind of other issues that could arise, particularly around warranties. We do not have anything relative to whether a warranty for a vehicle might be affected by the use. Typically diesel and dyed diesel burn the same way. They’re technically the same fuel, but it is something we would, you know, ask people to think about: look at your warranty, see what it says. There can sometimes be issues with the quality of dyed diesel, if it’s been stored properly, et cetera, and it’s just another thing from a state perspective, we wanna make sure farmers and members are aware of. Take a look at your warranty and at least be informed about how that might affect things.
Ryan Matthews: Now, Ohio Farm Bureau and other agricultural organizations have asked the governor for additional flexibility on dyed diesel. So where do things stand with that request specifically? And what would be your advice for farmers as they start to navigate these changes?
Leah Curtis: So we did send a letter with our other commodity and ag organizations asking for that flexibility. We have not received response yet to that letter, but we’ll be continuing to work on that and looking for ways to address the issue of the impact of fuel prices for our members. As I said, the warranty issue is one which I would have people to be considered of. Again, remember, as I said at the top, that the residues can remain in some tanks. So keep that in mind if you’re using it in a vehicle that will later be used in a taxable manner. You want to be careful about that. It could impact in the future enforcement if those residues do continue to be present. But I think also be careful, keep in mind that these are a huge impact and we know that. We also want people to be careful and you know take good thought behind their actions when they’re moving forward with these things.
Ryan Matthews: Fuel is just one of those input costs that farmers can’t get around, right? Especially during harvest, they need a lot of diesel fuel, whether it’s the tractors or the combines or the trucks going from field to field, it’s a very important tool. So while this is great that we have some relief, as you mentioned, there’s still a lot of questions and still some steps need to be taken. So appreciate you being here and talking through that with all of us.
Leah Curtis: Yeah, and as we always say, we’ll be continuing to work on this and, stay tuned to our website and our communications and we’ll be sure to communicate any changes that we do have happen as soon as they are available.
Ryan Matthews: Leah Curtis, associate general counsel for Ohio Farm Bureau. Leah, thanks again for being here.
Leah Curtis: Thank you.
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