Saving money with red dye fuel

One way some businesses are cutting fuel costs is through the use of red dye fuel. Red dye fuel is exactly the same in chemical make-up as clear fuel, but a red tint has been added to it that signifies its exemption from the excise tax. Red dye fuel is then sold at a lower price, specifically for use in heating or farm equipment and other unlicensed off-road machinery not used on highways, such as lawn tractors and skid-steers, which helps farmers and others who frequently use this equipment better control fuel expenses.

This is not a solution for all fuel needs, as many rental operators and their customers are discovering. Red dye fuel is intended only for unlicensed vehicles. Its use in licensed cars, trucks or other equipment and machines meant for driving on roads and highways is illegal. Breach of this law is considered tax evasion and has serious consequences. Even a small amount of red dye fuel contaminates the entire tank, which is then subject to fines and other penalties.

Compliance with red dye laws can be a tricky issue for rental companies. If a rental business is found to have licensed equipment used on highways with red dye fuel in the tank, the store is fined and other penalties can be imposed, depending on how many offenses the store has had.

Fines differ by state, but often reach into the thousands of dollars for a single tinted tank. To recover those costs, a rental store might go back to the customer, but the renter may not be aware of the laws regarding red dye fuel. In addition, if tanks are not checked by the rental store regularly, the last person to rent the equipment may not be the person who purchased the red dye fuel.

Once red dye has been introduced into a fuel tank, subsequent fuel in that tank will have traces of the dye and will therefore be considered in violation of the law until the tank is completely flushed with clear fuel. In addition, topping off a 100-gal. tank with a few gallons of red dye fuel will tint the entire tank, making all 100 gal. subject to fines that are often issued on a per-gallon basis.

Ted Cook, owner of Ventura Rental Center in Ventura, Calif., and the American Rental Association (ARA) president, has had some experience with this issue in his own rental business.

“Once red dye fuel is in the tank, you have to do a complete flush and that is a major hardship. So on a rental, if we miss that on a returned truck inspection, we now own the problem,” he says.

With fuel costs on the rise, more people are taking a chance at the pump with the inappropriate use of red dye fuel. As a result, random vehicle inspections are becoming more frequent and many rental stores are feeling the effects.

“We never saw anyone looking for this before,” says Joseph Muench, owner of Action Equipment Rental in Las Cruces, N.M., and ARA’s Region Seven director. “Suddenly, within the span of about 10 weeks, three of my five locations were tested. We were clean with the exception of one piece of equipment that came off rent while they were testing.”

The customer had filled an on-road piece of equipment with red dye fuel. Though the error was unintentional, someone still had to pay the fine.

Muench has learned that education and diligence are the keys to compliance.

“Make sure your employees know how to fill trucks, inspect equipment and educate customers. Fuel is fuel for a lot of people. They don’t know about the red dye,” he says.

In order to safeguard his customers and his business against fines, Muench also has added a few steps to the rental process.

“We have added verbiage to our rental contract stating the customer’s responsibility for any fines incurred for the inappropriate use of red dye fuel as well as the cost for flushing the tank. We go over the laws verbally with them and have them initial that part of the contract before the equipment leaves the store. We also have clean and clear decals by the fuel tanks that remind customers of the red dye rules. Finally, we test the equipment for red dye fuel in the presence of the customer when it is returned at the job site or in the store,” he says.

In order to limit confusion at the store, Muench has stopped buying red dye fuel.

“There are many rental businesses that rent only equipment that meets the requirements for using red dye. That’s all they should buy because they will save a lot of money. We rent both here, though, so paying the extra tax on our $15,000 to $20,000 per month fuel bill is worth it in order to avoid larger fines for mistakes,” he says.

Only diesel fuel is dyed for tax purposes. Those who use clear diesel or regular gasoline in off-road equipment can apply for a tax refund. Since the excise tax involves state and federal taxes, businesses might have to apply to two agencies
to obtain their total refund.