New Dyed Fuel Excise Tax Refund Rules Under the One Big Beautiful Bill: What Businesses Need to Know for 2026

Recent changes under the One, Big, Beautiful Bill (OBBB) introduce an important new opportunity for certain businesses to recover federal excise taxes paid on diesel fuel or kerosene that ultimately qualifies as dyed fuel for nontaxable use.

The U.S. Treasury and the IRS have announced forthcoming guidance that will establish a new statutory refund mechanism for these situations—closing a long-standing gap in prior law that left many taxpayers unable to recover taxes they should not have ultimately owed.

At Velin & Associates, Inc., we closely monitor developments like this because they can create meaningful tax savings for businesses with fuel-intensive operations, logistics exposure, or complex supply chains—even when fuel is not their primary business activity.

This article explains what changed, who may benefit, and how businesses should prepare before refund claims become available in early 2026.

What Is Dyed Fuel and Why Does It Matter?

Dyed fuel is diesel fuel or kerosene that has been chemically dyed to indicate it is intended for nontaxable uses, such as:

• Off-road equipment
• Farming and agricultural machinery
• Certain construction, mining, and industrial uses
• Power generation and other exempt activities

Because dyed fuel is restricted to nontaxable uses, it is generally exempt from federal excise tax. However, under prior law, complications arose when fuel was initially taxed as clear fuel and only later converted or removed from a terminal as dyed fuel.

The Problem Under Prior Law

Under federal excise tax rules, fuel is typically taxed upon its first removal from a terminal. In many real-world situations—especially involving pipeline transfers or terminal shutdowns—fuel may be:

1. Taxed when first removed as clear fuel
2. Transported to another terminal
3. Later dyed and removed again for a nontaxable purpose

Until now, there was no clear statutory mechanism allowing taxpayers to recover the original excise tax—even though the fuel ultimately qualified for exempt use.

What the One, Big, Beautiful Bill Changed

The OBBB created a new refund pathway that allows eligible taxpayers to recover federal excise taxes paid on diesel fuel or kerosene when:

• The fuel was originally taxed
• The tax was not previously credited or refunded
• The fuel was later indelibly dyed by mechanical injection
• The fuel was removed from an approved terminal
• The fuel was used for a qualified nontaxable purpose
• The qualifying dyed fuel removal occurs on or after December 31, 2025

Treasury and the IRS have announced that detailed claim procedures will be released in early 2026, and taxpayers are instructed not to submit claims until that guidance is issued.

Who Can File the Refund Claim?

One critical limitation remains:

Only the taxpayer who originally paid the federal excise tax may file the refund claim.

This means refund eligibility depends heavily on:

• Contract structure
• Ownership of fuel at the time of taxation
• Who bore the economic burden of the tax

This distinction will be extremely important for businesses that operate through multiple entities, distributors, or logistics partners.

Examples

Example 1: Logistics and Distribution Operations

A California-based business involved in fuel transportation experiences a temporary pipeline shutdown, requiring diesel fuel to be removed from one terminal, trucked to another terminal, and later reintroduced into the system as dyed fuel for exempt use.

Under prior law, the business paid excise tax on the first removal and had no practical recovery option.

Under the OBBB, beginning in 2026, this business may be eligible to recover the excise tax paid, provided it was the party that originally paid the tax and the fuel meets all dyed fuel requirements.

Example 2: Online Commerce and Fulfillment Businesses

A company operating in online commerce, such as a Shopify or Amazon-based business, may not sell fuel—but relies on third-party warehousing, logistics, or manufacturing partners that use dyed fuel for exempt industrial purposes.

When reviewing vendor agreements and cost allocations, Velin & Associates often identifies embedded excise tax costs that were previously unrecoverable.

With the new refund mechanism, businesses working with fuel-intensive partners may now be able to:

• Reevaluate contracts
• Clarify tax ownership
• Improve cost recovery planning

This can be especially relevant for CPA for Shopify Store, CPA for Online Commerce, CPA for Amazon Business, and Amazon Business CPA clients with large fulfillment footprints.

Example 3: Medical, Dental, and Professional Practices With Specialized Equipment

Certain medical practices, dental practices, and research facilities use generators or specialized equipment that may qualify for dyed fuel exemptions.

If fuel was taxed upfront but later used in a qualifying nontaxable manner, the entity that paid the tax may now have an opportunity to recover those costs under the new rules.

For CPA for Doctors, CPA for Dental Practice, Dentist CPA, and CPA for Medical Practice clients, these refunds may not be large individually—but over time, they can meaningfully reduce operating expenses.

Example 4: High Net Worth Individuals With Operating Entities

High net worth individuals often own operating entities in construction, agriculture, manufacturing, or infrastructure—industries where dyed fuel is common.

Velin & Associates frequently works with CPA for High Net Worth Individuals to identify:

• Missed refunds
• Structural inefficiencies
• Compliance gaps that limit recovery

The new dyed fuel refund mechanism creates a planning opportunity to align ownership, tax payment responsibility, and refund eligibility going forward.

Why Timing and Documentation Matter

Treasury has made it clear:

• No claims will be processed until guidance is issued
• Claims will require strict documentation
• Eligibility will be closely reviewed

Businesses should begin preparing now by:

• Identifying fuel transactions occurring after December 31, 2025
• Confirming who paid the original excise tax
• Reviewing terminal removal records
• Maintaining clear documentation of dyed fuel use

How Velin & Associates, Inc. Can Help

At Velin & Associates, Inc., we help businesses and individuals:

• Analyze whether dyed fuel transactions may qualify for refunds
• Identify the correct taxpayer eligible to file a claim
• Coordinate with vendors, distributors, and fuel suppliers
• Prepare documentation ahead of IRS guidance
• Integrate excise tax recovery into broader tax planning strategies

Even if fuel is not a core part of your business, indirect exposure through logistics, equipment, or operations may still create opportunities—or compliance risks.

Final Thoughts

The dyed fuel excise tax refund provision under the One, Big, Beautiful Bill represents a targeted but meaningful change that corrects an inequity in prior law. For eligible taxpayers, it can result in real cash recovery, improved compliance, and better long-term planning.

If your business touches fuel at any point—directly or indirectly—this is an update worth reviewing carefully. For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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