South Dakota Restricted Red Dyed Diesel Usage

The state department issued new guidance limiting tax-exempt fuel use to certified agricultural producers.

Updated on Oct. 8, 2026 in Trucks

Isometric editorial illustration showing a steel fuel storage tank in a field, representing agricultural tax policy. — The South Dakota Department of Revenue has implemented new regulations restricting the use of tax-exempt red dyed diesel to certified agricultural producers. AI Illustration. Upload story photo >

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Should states restrict the use of lower-taxed dyed diesel to only agricultural producers?

The South Dakota Department of Revenue has issued new guidance restricting the on-road use of red dyed diesel to agricultural producers who possess valid exemption certificates. This move aligns state enforcement practices with specific federal and state regulatory requirements.

Why it matters

The change clarifies the legal tax status of dyed fuel, ensuring agricultural businesses maintain compliance while limiting the fuel's use for non-exempt purposes. It also addresses the oversight of tax collection regarding state sales and municipal taxes.

Agricultural producers must present a completed exemption certificate to sellers, who are required to maintain these documents for compliance. The usage of this fuel for non-agricultural purposes remains subject to state sales and municipal taxes.

The players

South Dakota Department of Revenue

This state agency is responsible for the administration and enforcement of tax laws and revenue collection across South Dakota.

South Dakota Highway Patrol

This law enforcement entity provides statewide patrol services and is tasked with maintaining traffic safety on South Dakota roads.

The details

Under the new directive, sellers are responsible for retaining exemption certificates in their business records to verify that purchasers qualify for the fuel tax exemption. Meanwhile, the Governor has ordered the South Dakota Highway Patrol to stop conducting traffic stops specifically to inspect vehicles for dyed diesel violations.

October 8, 2026: Department of Revenue guidance takes effect.
January 2027: Potential federal tax obligations arise for non-agricultural users.

Roadmap

The update reflects a broader effort to align state tax enforcement with evolving federal fuel regulations. By formalizing exemption processes, the state seeks to create clearer distinctions between commercial agricultural operations and general consumer fuel usage.

Agricultural producers must ensure they have their valid exemption certificates on hand to avoid tax complications when purchasing fuel. Drivers and fleet operators should note that law enforcement will not conduct inspections for dyed diesel during routine traffic stops.

The takeaway

Producers should audit their current documentation to ensure compliance with the new state revenue requirements before the next tax cycle. Following these guidelines helps businesses avoid potential federal tax liabilities that may arise for non-exempt users in early 2027.