If you run a service station, a diesel storage tank, or a truck that hauls your own product, you have probably heard that the IRS stopped penalizing dyed diesel fuel used on the highway. That is true — federally, and only through December 31, 2026. California did not sign on. As of this writing the state’s own ban on running dyed diesel on a public highway is still on the books, and the penalty starts at $10 per gallon. For a diesel seller or fleet operator in La Crescenta, Glendale, or anywhere in LA County, that gap between the federal rule and the California rule is the whole story.

What the IRS actually waived

In news release IR-2026-122, issued October 14, 2026 after an Executive Order signed October 5, the IRS said it will not impose penalties related to the federal excise tax on dyed diesel fuel sold for — or used in — diesel-powered vehicles on the highway. The relief is nationwide, retroactive to October 1, 2026, and runs until December 31, 2026. It specifically covers the penalties for failing to make semimonthly excise tax deposits and for failing to keep adequate records, and it says sellers and distributors need not investigate or document what the dyed fuel they sell is ultimately used for.

What it is not is forgiveness of the tax. On the tax itself the release says only that the IRS anticipates further guidance on postponing payment under 26 U.S.C. 7508A, and that it will explore ways to eliminate the obligation to pay amounts deferred. The person liable is generally whoever sells the dyed diesel at retail — or, if it was not bought at retail, the operator of the vehicle. Do not read “no penalty” as “no tax.”

California did not sign on

The IRS release is explicit that the relief applies for federal tax purposes only and has no effect on state fuel taxes or state penalties for highway use of dyed diesel. Many — but not all — states have matched it, the release says, so check your own state agency. California is the one to check.

Revenue and Taxation Code section 60101(c) prohibits operating or maintaining a motor vehicle on any public highway in the state with dyed diesel fuel in the fuel supply tank. The narrow exception covers certain on-highway uses federal law permits, and only for operators registered with the CDTFA as a qualified highway vehicle operator or exempt bus operator, or for government entities. The penalty for each violation is the greater of $10 for every gallon involved or $1,000 multiplied by the total number of penalties imposed on that person — and the CDTFA says it is generally imposed against the vehicle owner.

As of this writing we found no CDTFA notice adopting the federal relief. The department’s 2026 special-notice list runs through September with no dyed diesel item, and its diesel fuel industry-topics guide still states the highway prohibition without mentioning the federal waiver. Confirm the current position with the CDTFA before putting dyed fuel in a highway tank here.

If you sell dyed diesel, the pump notice still applies

Section 60102 requires a specific warning on dyed diesel: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE. It goes on any retail pump dispensing dyed diesel, within easy sight of whoever is pumping, and on shipping papers, bills of lading, and invoices for terminal-rack sales and for dyed fuel held outside the bulk transfer/terminal system. A seller who fails to give it is presumed to have known the fuel would go to a taxable use, and faces the same penalty — the greater of $10 per gallon sold without proper notice or $1,000 times the number of violations. The federal relief lifted the obligation to document end use. It did not lift California’s obligation to warn about it.

What this means for you

If all your diesel is clear, nothing here changes for you. If you buy, store, or sell dyed diesel, your federal penalty exposure on highway use is paused until December 31, 2026 — and your California exposure is not. The practical rule for an LA County business through year-end: keep dyed fuel out of highway tanks, keep your pump and invoice notices exactly as section 60102 words them, and keep your records even though the IRS says you need not. Records you kept and did not need cost nothing. The alternative is a $10-per-gallon argument with the CDTFA.

Before December 31

  • Treat the federal waiver as federal only — California’s highway prohibition under RTC 60101(c) is unchanged as of this writing
  • Check whether the CDTFA has since posted a dyed diesel notice at cdtfa.ca.gov/news/special-notices-and-notification-letters.htm
  • Walk your lot: is the “NONTAXABLE USE ONLY” notice on every pump dispensing dyed diesel, in easy sight, and printing on your dyed-fuel invoices and shipping papers?
  • Keep your gallon-by-gallon records through the relief period anyway — the federal waiver ends December 31, and the state never waived anything
  • Ask your fuel supplier in writing whether anything delivered since October 1 was dyed
  • Watch for the promised IRS guidance on postponing the excise tax payment itself
  • Questions on the California side? The CDTFA Customer Service Center is 1-800-400-7115 (Mon–Fri, 7:30 a.m.–5:00 p.m. Pacific)

Fuel rules in California move on their own schedule — see our note on the July 1 excise tax increase for service-station operators, and the local tax & license map for which agency collects what at your address.

Sources & further reading

This article is general information, not tax advice for your specific situation. Rules change and details matter — talk to a CPA (we know one) before acting on anything here.