Local Tax on Dyed Fuels: Possible Revenue and Implementation Strategies

In rural areas throughout the U.S., in addition to standard gasoline and diesel fuel, “dyed fuel” is also available for purchase. This type of fuel, which is typically 28 to 98 cents less expensive per gallon, is not taxed because it is supposed to be used only for vehicles that do not use the local road systems. However, many of these vehicles, such as farm and construction equipment used in areas (e.g. liquid manure spreaders, grain carts, feed trucks, combine harvesters, excavators, etc.…) are much heavier than the average personal vehicle, and often use secondary roads for moving such equipment. These vehicles damage the many rural paved and unpaved roads. As such, those who maintain these roads systems do not have sufficient financial resources to repair these ongoing damages due to this lack of income from taxes. There is therefore an opportunity to consider methods of applying a local fee structure on the use of dyed fuel, to help to recuperate the cost of maintaining secondary road systems. This research will focus on assessing, first, the current state of this challenge, including a literature review and survey of the use of dyed fuels. Next, interviews of stakeholders will seek to identify the state of the challenges associated with dyed fuel use and to assess the support and/or resistance to establishing an additional mechanism to recuperate funds. It will then propose possible methods to address this challenge, supported by financial and policy analysis on the impact of each. The idea for this proposal originated directly from county engineers, specifically personnel in Iowa drove the development of the initial idea of this proposed effort, which was further strongly supported by Arizona DOT personnel. These individuals are responsible for maintaining local transportation infrastructure. These conversations made it clear that especially rural counties have significant infrastructure maintenance costs that in many cases are greater than the available funds. The proposed work is specifically designed to evaluate the scope of these challenges, and work with stakeholders to identify solutions. The Iowa Highway Research Board has already voted to provide a full one-to-one match in support of this proposed effort. They have expressed clear support and enthusiasm for the project, noting that counties across Iowa—and likely many other states—stand to benefit from a structured evaluation of needs and practical mechanisms that work toward implementation pathways. This underscores strong confidence in potential impacts.

Language

• English

Project

• Status: Active
• Funding: $150,000.00
• Contract Numbers:

  69A3552344813

  69A3552348318

• Sponsor Organizations:

  Office of the Assistant Secretary for Research and Technology

  University Transportation Centers Program
  Department of Transportation
  Washington, DC  United States  20590
• Managing Organizations:

  National Center for Infrastructure Transformation

  Prairie View A&M University
  Prairie View, TX  United States  77446
• Performing Organizations:

  Michigan State University, East Lansing

  Department of Civil & Environmental Engineering
  Institute for Community Development
  East Lansing, MI  United States  48824-1226
• Principal Investigators:

  Cetin, Bora

  Cetin, Kristen

  Mitra, Debruda

• Start Date: 20260501
• Expected Completion Date: 20280430
• Actual Completion Date: 20270131
• USDOT Program: University Transportation Centers
• Source Data: 03-24-MSU

Subject/Index Terms

• TRT Terms: Fuel taxes; Public policy; Rural areas; Secondary roads; Unpaved roads
• Subject Areas: Economics; Finance; Highways;

Filing Info

• Accession Number: 02001921
• Record Type: Research project
• Source Agency: National Center for Infrastructure Transformation
• Contract Numbers: 69A3552344813, 69A3552348318
• Files: UTC, RIP
• Created Date: Sep 10 2026 9:18AM