For contractors managing tight project budgets, lower fuel costs can make a difference. President Trump’s October 5 executive order on dyed diesel offers the prospect of temporary relief. Before changing fuel purchases, however, New Jersey businesses should understand what the order provides and what still needs to be confirmed.
Dyed diesel is commonly used in off-road construction equipment. The new order directs Treasury to determine whether it can legally postpone certain federal taxes on highway use for the period from October 5 through December 31, 2026. It also directs the IRS to announce specified penalty relief. Implementing guidance must identify who qualifies, applicable conditions, and when deferred taxes must be paid.
That last point matters. The order does not itself forgive the deferred taxes. It directs Treasury to explore ways to eliminate them, including legislation. Contractors should therefore avoid treating a temporary reduction in cash outlay as a permanent reduction in project costs.
New Jersey presents a separate question. N.J.S.A. 54:39-144 generally prohibits dyed fuel in vehicles traveling on public highways, with an exception for uses lawful under federal tax law, subject to additional state restrictions. The practical issue is how the federal relief fits that exception. Businesses should confirm the applicable federal guidance and New Jersey’s treatment before putting dyed fuel into highway vehicles.
There is also a contract issue. Contractors and project owners should review how their agreements handle fuel expenses, surcharges, and price adjustments. For example, an owner reviewing a fuel surcharge should ask how it was calculated and whether it reflects actual costs. A contractor preparing a new bid should account for the possibility that deferred taxes will become payable. Any agreed pricing adjustment should be documented.
Before making a change, contractors should:
- Confirm that the relief covers their intended use and the states where their vehicles operate.
- Review fuel provisions in supplier agreements, subcontracts, and customer contracts.
- Keep invoices and records identifying purchase dates, quantities, and vehicle use.
- Coordinate with their accountant on potential tax obligations and plan for the relief period to end.
The opportunity is worth evaluating. Confirming eligibility and documenting the financial treatment now can help prevent a fuel-saving decision from becoming a tax or payment dispute later.
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