Katerina Swanson
In the United States, diesel fuel is taxed at both the federal and state levels. As of July 1, 2024, the federal excise tax on diesel fuel is 24.3 cents per gallon, while state and local taxes add an average of 35.89 cents per gallon, resulting in a total US volume-weighted average fuel tax of 60.29 cents per gallon for diesel. The tax rates vary across states and are used to fund the repair and maintenance of roads and highways. To avoid paying diesel taxes for off-road equipment, companies can purchase off-road diesel or dyed diesel, which is exempt from federal and state excise taxes. However, using dyed diesel in on-road vehicles is illegal and can result in fines or jail time.
| Characteristics | Values |
|---|---|
| Federal excise tax on diesel fuel | 18.3 cents per gallon or 18.4 cents per gallon |
| Federal excise tax on gasoline | 18.3 cents per gallon or 18.4 cents per gallon |
| State and local taxes and fees on diesel fuel | 35.89 cents |
| State and local taxes and fees on gasoline | 34.24 cents |
| Total US volume-weighted average fuel tax on diesel fuel | 60.29 cents per gallon |
| Total US volume-weighted average fuel tax on gasoline | 52.64 cents per gallon |
| First federal gasoline tax in the US | 1 cent per gallon |
| Year of the first federal gasoline tax in the US | 1932 |
| US federal gasoline tax since 1993 | 18.4 cents per gallon |
| US federal gasoline tax since October 1, 1993 | unchanged |
| US federal gasoline tax since 1993, not adjusted for inflation | 111% or 113% |
| Recommendation by the National Surface Transportation Infrastructure Financing Commission in February 2009 for the gasoline tax | 10 cents increase |
| Recommendation by the National Surface Transportation Infrastructure Financing Commission in February 2009 for the diesel tax | 15 cents increase |
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What You'll Learn
Federal and state diesel fuel tax rates
Federal and state taxes on diesel fuel in the US vary across states. As of January 1, 2025, the average state tax on diesel fuel was $0.35/gal. However, diesel fuel taxes vary across states, with some states having higher rates than others. For example, as of July 2024, Connecticut had a diesel fuel tax rate of $0.524/gal, while Michigan's rate was $0.488/gal after a decrease of $0.036.
The US federal excise tax on diesel fuel is currently 24.4 cents per gallon, including a Leaking Underground Storage Tank fee of 0.1 cents per gallon. This federal tax was last raised on October 1, 1993, and has not been adjusted for inflation, which increased by 111% from October 1993 to December 2023. The revenue generated from the federal excise tax on diesel fuel partly supports the Highway Trust Fund.
In addition to the federal excise tax, state taxes on diesel fuel include various other taxes and fees, such as environmental taxes, special taxes, and inspection fees. These taxes vary from state to state and are determined by factors such as population and fuel volume sold. Some states, such as California, Illinois, and Pennsylvania, have relatively high diesel fuel taxes, while others, like Alaska, Mississippi, and Hawaii, have lower rates.
The diesel fuel tax rates have been a subject of debate, with some critics arguing that the revenue generated from these taxes is diverted to unrelated government programs. On the other hand, researchers have pointed out that the revenue is crucial for road-related spending and infrastructure development. To address the loss of purchasing power due to inflation, the National Surface Transportation Infrastructure Financing Commission recommended a 15-cent increase in the diesel tax in a 2009 report.
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The impact of inflation on diesel tax
The federal excise tax on diesel fuel in the United States is currently set at 24.4 cents per gallon (although one source states 24.3 cents). This rate has remained unchanged since 1993 and is not indexed to inflation, which increased by 111% from October 1993 to December 2023. As a result, the purchasing power of the fixed-rate diesel tax has declined over time. In other words, the tax rate today buys less than it did in 1993 when adjusted for inflation.
The impact of this erosion in purchasing power has been significant. The National Surface Transportation Infrastructure Financing Commission, for instance, recommended a 15-cent increase in the diesel tax in a 2009 report. The report also proposed tying the tax rate to inflation to prevent further loss in purchasing power. Similarly, the Congressional Budget Office has proposed increasing the federal excise tax on diesel fuel by 15 cents per gallon and indexing the tax for inflation each year using the chained consumer price index.
Indexing the diesel tax for inflation would help maintain the tax's purchasing power and ability to generate revenue over time. Without indexing, the real value of the tax revenue collected erodes as inflation increases. This erosion can result in a revenue shortfall for the Highway Trust Fund, which relies on these tax revenues to fund highway construction, maintenance, and investment in mass transit.
However, increasing the diesel tax rate and indexing it for inflation can have economic and social implications. Higher diesel taxes may be passed on to consumers in the form of higher prices for goods and services, disproportionately impacting low-income households, which spend a larger share of their income on transported retail goods. Additionally, diesel taxes impose a greater burden on rural households and drivers of conventional diesel-powered vehicles, as drivers of electric vehicles pay little to no fuel tax.
In conclusion, while indexing the diesel tax for inflation is necessary to maintain its purchasing power, policymakers must carefully consider the potential impact on different segments of society. Measures to offset the regressive nature of diesel taxes, such as exemptions or rebates for low-income households, could be explored to ensure that the tax burden is distributed more equitably.
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Diesel tax exemptions
In the United States, the federal excise tax on diesel fuel is 24.4 cents per gallon, contributing to a total US volume-weighted average fuel tax of 60.29 cents per gallon for diesel. While most diesel fuel sales and purchases are taxable, certain exemptions exist.
The state of California, for example, offers partial tax exemptions for businesses engaged in agricultural activities, such as farms, nurseries, or food processing. This includes trucking companies that haul agricultural products and support agricultural operations. To qualify for the partial exemption, the diesel fuel must meet specific requirements and be used for eligible activities, such as transporting harvested agricultural products.
In addition, California provides a Diesel Fuel Tax Exemption for diesel fuel used on farms for farming purposes, reducing federal and state excise taxes. Farmers can purchase diesel tax-exempt by using an exemption certificate or buying dyed diesel fuel, which is restricted from use on public highways in California.
Other exemptions in California include diesel fuel sold to exempt bus operators, the United States Postal Service, and train operators for off-highway use. These entities must obtain the necessary exemption certificates, such as the CDTFA-231-DB for bus operators and the CDTFA-231-PT for train operators.
It is important to note that the tax landscape may have changed since the last update on March 30, 2025, and that tax rates can vary by state.
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Off-road diesel
In the United States, diesel fuel is taxed at a federal level and a state level. As of July 1, 2024, the federal tax on diesel fuel was 24.3 cents per gallon, which included an excise tax of 24.4 cents per gallon and a Leaking Underground Storage Tank fee of 0.1 cents per gallon. State taxes vary but include excise taxes, environmental taxes, special taxes, and inspection fees. As of April 2019, state and local taxes added an average of 35.89 cents to the price of diesel fuel, bringing the total US volume-weighted average fuel tax to 60.29 cents per gallon.
The main difference between on-road and off-road diesel is in their intended use, taxation, and colour. On-road diesel is fully taxed and available for purchase at most fuel stations, while off-road diesel is not taxed and is sold through bulk distributors. Off-road diesel can be as much as 25 cents cheaper per gallon, resulting in significant savings for industries such as construction and agriculture that rely heavily on diesel fuel. While there used to be a difference in sulfur content, with off-road diesel having a higher sulfur content, this is no longer the case as both types of diesel now have to adhere to Ultra Low Sulphur Diesel (ULSD) specifications.
It is important to note that the improper use of off-road diesel can result in hefty fines. While off-road diesel provides tax advantages for certain industries, it is illegal to use it in vehicles that are driven on public roads. Authorities may perform a "dip test" to check the fuel tank of a vehicle and determine if the proper type of diesel is being used. Therefore, it is crucial to follow the regulations regarding the use of off-road diesel to avoid any legal consequences.
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The use of fuel cards
Fuel cards, also known as fleet cards, are used as payment cards for gasoline, diesel, and other fuels at gas stations. They are similar to credit cards and can be used to make and track fuel purchases. Initially, fuel cards were targeted at haulage or delivery companies, but they are now used by a wide range of businesses and individuals.
There are three main types of fuel cards: branded fuel cards, merchant fuel cards, and universal fuel cards. Branded fuel cards are issued by specific fuel providers and can only be used at their gas stations, while universal fuel cards are not tied to any specific provider and can be used at various locations. Merchant fuel cards are a type of partnership between fuel merchants and larger fuel companies, allowing cardholders to purchase fuel and other authorized purchases at specific fuel stations or groups of fuel stations.
Fuel card programs often offer discounts, rebates, and incentives on fuel purchases, similar to airline mileage programs. Card providers may also offer additional benefits such as roadside assistance, discounts on maintenance and parts, loyalty bonuses, and cashback options. Fuel cards can also help businesses and individuals save money by providing discounted fuel prices within a network of fueling locations.
Fuel cards have evolved from manual processes to magnetic strip technology and now to smartchip technology, similar to Chip and PIN. This has improved security, reduced the risk of human error, and made it more convenient for users to manage their fuel purchases.
In terms of road tax on diesel fuel, as of July 1, 2024, the federal excise tax rate in the United States was 24.3 cents per gallon for diesel fuel. This rate has not changed since 1993 and is not indexed to inflation. State and local taxes and fees further add to the total fuel tax, resulting in a volume-weighted average fuel tax of around 60.29 cents per gallon for diesel fuel as of April 2019.
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Frequently asked questions
The federal tax on diesel fuel in the US is 24.4 cents per gallon.
Yes, diesel fuel is taxed at a higher rate than gasoline. The federal tax on gasoline is 18.4 cents per gallon.
Diesel fuel is taxed at a higher rate because diesel vehicles tend to be less fuel efficient and cause more wear and tear on roads.
Yes, the tax on diesel fuel has changed over time. The last change to the federal tax rate was in 1993, but there have been proposals to increase the tax since then.
Yes, there are some exemptions to the diesel fuel tax. For example, dyed diesel, also known as red diesel, is exempt from federal and state excise taxes. This type of diesel is designated for off-road use, such as in farming equipment and construction machinery.
