News & Insights

On October 5, 2026, President Trump issued Executive Order 14435, titled “Emergency Tax Relief on Diesel Fuel”, which directs the United States Treasury Department (the “Treasury”) to consider a temporary postponement of certain federal diesel excise taxes, and which also directs the Internal Revenue Service (the “IRS”) to suspend penalties associated with the sale and use of red-dyed diesel fuel. The IRS has since announced nationwide penalty relief beginning on October 1, 2026 through December 31, as well as temporary administrative relief from reporting and recordkeeping requirements related to taxes resulting from use of red-dyed diesel for otherwise taxable purposes. These developments have renewed interest in red-dyed diesel among school bus contractors. But, for Pennsylvania school bus contractors, the new federal action may have limited practical impact because of existing federal and state laws that already permit the use of red-dyed diesel for qualifying school transportation.

Red-dyed diesel is generally associated with certain nontaxable uses like farming and other off-road applications. Although use on public highways is generally prohibited, federal law provides an exemption for qualifying school bus transportation. More specifically, federal law classifies school bus transportation as a non-taxable use when the school bus is transporting students and school employees, therefore permitting red-dyed diesel to be purchased and used in qualifying school bus transportation.

On the state level, Pennsylvania generally prohibits motor vehicles from using red-dyed diesel on the highway. However, Pennsylvania expressly permits highway use when authorized under federal law or regulation. Because school transportation of students and school employees is permitted under federal law, it is also allowed under Pennsylvania law.

Contractors interested in using red-dyed diesel in Pennsylvania should ensure that the fuel is used exclusively for qualifying school transportation, as permitted under federal law. Although the Trump administration’s executive order may appear to help school bus operators in some states, it does not appear to have any significant effect on Pennsylvania school bus contractors due to existing laws. If you have questions on the use of red-dyed fuel, please contact us at 215-896-3846 or help@rckelly.com.