South Dakota Limits Tax-Free Dyed Diesel to Farm Use
South Dakota's Department of Revenue issued guidance, effective October 8, 2026, saying only agricultural producers holding a valid agricultural exemption certificate should use red dyed diesel for on-road travel. The agency said the move is consistent with other states that have relaxed rules on dyed diesel after a federal directive.
The department said non-agricultural users may still owe federal tax on the fuel in January, depending on further federal guidance, and remain liable for state sales tax and any applicable municipal tax. Under South Dakota Codified Law 10-45-19, sales tax applies unless a purchase qualifies for the agricultural exemption; sellers must keep completed exemption certificates on file. The department noted that, depending on federal rules, non-agricultural users paying sales tax on dyed diesel could end up paying more than they would under the regular diesel tax.
The Governor has directed the Highway Patrol not to stop or check vehicles specifically for dyed-diesel violations, citing inconsistent directives from other states and the federal government. The department said it cannot waive taxes set in state law and urged anyone using dyed fuel on-road to keep accurate fuel-use records.
What's next
- Watch for federal guidance expected by January on dyed diesel tax treatment.
- Non-agricultural users should track state sales tax exposure regardless of federal action.
- Monitor other states for similar clarifications as the patchwork grows.
All sources
- Dyed Diesel Clarification for South Dakota — Government site: South Dakota Department of Revenue (.gov), 2026-10-08
