South Dakota Clarifies Rules for Dyed Diesel Fuel Use

By Scout Nelson

The South Dakota Department of Revenue has issued guidance on the use of red dyed diesel fuel for vehicles driven on public roads. Under the guidance, only agricultural producers with a valid agricultural exemption certificate should use dyed diesel for on-road purposes at this time.

The guidance follows similar steps taken by other states to relax rules on red dyed diesel. However, federal tax questions remain unresolved. Until the federal government provides further direction, non-agricultural users may still owe federal taxes in January. They must also pay applicable state and local taxes, which may reduce or remove any savings from using dyed diesel.

Tax Rules for Dyed Diesel

The Department of Revenue reminds fuel sellers and buyers that dyed diesel remains subject to state sales tax and applicable municipal taxes unless the purchase qualifies for an agricultural exemption under South Dakota Codified Law 10-45-19.

Sellers must obtain a properly completed exemption certificate to exempt an eligible sale from the applicable tax. They must also keep the certificate in their records. The required form is available through the South Dakota Department of Revenue.

The state cannot remove taxes that are required by state law. As a result, non-agricultural users must pay sales tax when purchasing dyed diesel. Depending on future federal guidance, some users who choose dyed diesel and pay sales tax could end up paying more than they would for regular diesel.

Highway Patrol Enforcement

The Governor has directed the South Dakota Highway Patrol not to stop vehicles solely to check for dyed diesel violations. The Department of Public Safety will continue to follow this direction for all traffic because states and the federal government have issued varying instructions.

However, this approach to enforcement does not remove the tax requirements. Drivers and fuel buyers remain responsible for following the applicable tax rules.

What Qualifies as an Agricultural Purpose

South Dakota Codified Law 10-45-1 defines agricultural purposes as:

“Agricultural purposes” is defined in SDCL 10-45-1 as, “the producing, raising, growing, or harvesting of food or fiber upon agricultural land, including dairy products, livestock, and crops. The services of custom harvesters, chemical applicators, fertilizer spreaders, hay grinders, and cultivators are considered agricultural purposes. The harvesting of timber on land within the state is considered an agricultural purpose.”

This definition covers a range of farming activities, including crop production, livestock operations, custom harvesting, and other listed services.

Steps for Fuel Users and Sellers

Anyone using dyed diesel on public roads should keep accurate records of fuel purchases and use. They should also monitor updates from state and federal authorities because the rules may change as further guidance becomes available.

Agricultural producers should make sure they have a valid exemption certificate before using dyed diesel for on-road purposes. Sellers should confirm that eligible purchases have the required documents.

For questions about fuel taxes, exemption certificates, or compliance, consumers and businesses should contact the South Dakota Department of Revenue.

Following the guidance can help agricultural producers, fuel sellers, and other diesel users understand their responsibilities while avoiding unexpected tax costs.

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