LITTLE ROCK, Ark. — With diesel prices hovering above $6 a gallon and U.S. fuel supplies unusually tight heading into the fall harvest season, Arkansas Gov. Sarah Huckabee Sanders has declared a statewide emergency and temporarily lifted certain state taxes and penalties that normally prevent qualifying farmers and timber harvesters from using dyed diesel in highway vehicles.
The order comes as diesel prices have surged to levels not seen before in AAA’s national price series.
As of Wednesday, Sept. 30, AAA reported a national average diesel price of approximately $6.41 per gallon. One year earlier, the national average was about $3.70, meaning diesel now costs roughly 73 percent more than it did at this time last year. In Arkansas, AAA reported an average of approximately $6.07 per gallon Wednesday.
The current price is actually slightly below the record reached just over a week ago. According to AAA, the national diesel average hit $6.5276 per gallon on Sept. 22, the highest national average in its records. A month ago, diesel was averaging about $5.60 nationally.
While prices have eased somewhat from that record, there are significant reasons to believe the diesel market could remain volatile — and vulnerable to another increase.
The U.S. Energy Information Administration said in its September Short-Term Energy Outlook that American inventories of distillate fuel oil, the category that includes diesel, were expected to fall below 100 million barrels and remain below the five-year range through the end of 2026 and much of 2027.
EIA also said the situation could become particularly noticeable this fall because refinery production of distillate typically declines during seasonal maintenance at the same time agricultural diesel consumption increases during harvest. The agency said global distillate production is expected to remain below last year’s levels in the coming months.
International developments are adding additional uncertainty.
Russia, historically a major diesel exporter, extended restrictions on diesel exports through the end of October on Wednesday amid disruptions to its refining industry. Meanwhile, continued conflict involving Iran and disruptions affecting global oil and fuel transportation have contributed to tighter supplies. Reuters reported Wednesday that analysts continue to see supply risks as a major factor in the oil market, while high shipping costs and product shortages are keeping pressure on fuel markets.
That does not guarantee diesel will climb above its Sept. 22 record. In fact, EIA’s September forecast called for retail diesel prices to average $5.55 during the fourth quarter, below today’s price. That forecast, however, was completed Sept. 3, before diesel subsequently climbed above $6.50 nationally. EIA is scheduled to issue its next Short-Term Energy Outlook on Oct. 6.
Against that backdrop, Sanders signed Executive Order 26-15 on Monday, Sept. 29. The order takes effect Sept. 30 and remains in place through Oct. 30 unless it is amended or extended.
The measure could provide immediate relief for some agricultural and logging operations that already keep supplies of dyed diesel on farms or job sites for tractors, skidders, loaders and other off-road equipment. However, the order is more limited than simply allowing all farmers and loggers to use “tax-free diesel” on Arkansas highways.
Under normal circumstances, dyed diesel — commonly called red diesel — is intended for qualifying off-road uses and receives different tax treatment from the clear diesel sold for highway vehicles. Arkansas law generally prohibits dyed fuel from being placed into the fuel tanks of most highway vehicles.
Arkansas currently taxes clear highway diesel at 28.5 cents per gallon, while dyed diesel is subject to a 6-cent-per-gallon state excise tax.
The penalties for improperly using dyed diesel on the highway can be substantial. Arkansas law provides for additional tax and a penalty of $10 per gallon based on the amount of fuel the vehicle’s tank could contain if filled to capacity. Similar provisions apply when dyed and undyed diesel are mixed in a vehicle that is not otherwise exempt.
Sanders’ order temporarily suspends those specified Arkansas taxes and penalties for vehicles and businesses that meet several requirements.
To qualify, a vehicle must fall within one of the vehicle classes specified in the order — Classes 2, 3, 4, 5, 6 or 8 under Arkansas law. It must also be registered in Arkansas, owned and operated by an individual or business engaged in qualifying agricultural or forestry operations, and primarily used to carry out the functions of that business.
Vehicles licensed under the International Fuel Tax Agreement, commonly known as IFTA, are excluded.
The order also narrowly defines the agricultural and forestry operations that qualify.
An agricultural operation must be a farming business producing food, fiber, grass sod, nursery products or livestock in commercially marketable quantities. Established businesses must be able to demonstrate farming activity through recent tax filings, while newer operations can demonstrate that they have the land, financing and other resources necessary to establish a commercially viable farming operation.
For forestry, the order defines a qualifying operation as a business engaged in harvesting timber, beginning with cutting the tree and continuing through the point at which the tree or its parts have been loaded in the field onto a truck or other vehicle for transportation.
The order therefore does not give everyone involved in agriculture or forestry permission to put dyed diesel into any vehicle they own. A diesel pickup does not automatically qualify simply because its owner owns a farm or works in the timber industry. Both the vehicle and the operation have to meet the requirements outlined in the executive order.
For businesses that do qualify, however, the practical effect could be significant.
Many farms and logging operations already maintain bulk tanks of dyed diesel for equipment that never travels on public highways. During the emergency period, qualifying businesses can draw from those existing fuel supplies for certain road-going work vehicles without facing the Arkansas assessments and penalties that would normally apply.
There is also an important distinction between state and federal law.
Sanders’ executive order controls Arkansas enforcement, but an Arkansas governor cannot independently waive federal fuel taxes or federal dyed-diesel penalties. The order therefore directs the Arkansas Department of Finance and Administration to request emergency dyed-diesel penalty relief from the Internal Revenue Service within three business days.
Under IRS emergency-relief procedures, the federal government can waive penalties associated with using dyed diesel in highway vehicles under qualifying emergency circumstances. Federal guidance indicates, however, that the underlying federal highway fuel tax generally remains due even when the dyed-diesel penalty is waived.
The Arkansas order does not state that federal relief has already been approved.
That makes the description of the fuel as “tax-free” somewhat more complicated than the Governor’s announcement headline might suggest. The order provides real state-level relief, but it does not simply make every gallon of diesel used by farmers or loggers free from all state and federal taxation.
For Arkansas farmers and timber harvesters confronting diesel prices above $6 per gallon during one of the heaviest fuel-use periods of the year, the immediate importance of the order is more straightforward: qualifying operations may temporarily have access to a less heavily taxed supply of diesel they already keep on hand.
The order does not reduce the market price of diesel itself, provide a rebate or subsidy, or protect businesses from further increases in fuel prices.
And with U.S. diesel inventories exceptionally low, fall agricultural demand underway, refinery maintenance approaching and international fuel supplies remaining unsettled, the conditions that helped drive diesel to record levels have not disappeared.
Unless Sanders extends or modifies the emergency declaration, the Arkansas relief expires Oct. 30, 2026.
