South Dakota Limits Dyed Diesel Tax Exemptions

The South Dakota Department of Revenue issued guidance clarifying that tax exemptions for red-dyed diesel used on roads are restricted exclusively to agricultural producers holding valid exemption certificates. Under state law, agricultural purposes include the production of food or fiber, livestock, dairy, and services such as timber or custom harvesting.

Non-agricultural users remain liable for state and municipal sales taxes. The department warned that paying these sales taxes on dyed diesel could potentially result in higher costs for the user than purchasing regular diesel tax. Additionally, the agency noted that users may still owe federal taxes in January while awaiting further federal clarification.

Despite these tax requirements, the Governor of South Dakota directed the South Dakota Highway Patrol and the Department of Public Safety to stop pulling over vehicles to check for dyed diesel violations. This directive stems from inconsistent guidelines provided by the federal government and other states.