ALASKANS MAY USE UP STOCKS OF BLUE-DYED DIESEL FUEL.

Notice 94-18

This notice provides guidance regarding the dyeing of diesel fuel in Alaska.

The Omnibus Budget Reconciliation Act of 1993 made significant changes to the diesel fuel excise tax, effective January 1, 1994. A principal feature of the new law is the use of dyes to differentiate taxed and untaxed diesel fuel. On November 30, 1993, temporary regulations were issued to implement these changes (T.D. 8496; 58 FR 63069). Those temporary regulations provide that diesel fuel qualifies for tax-free removal at the terminal rack only if it is dyed blue or red. Blue dye is to be used for diesel fuel required to be dyed pursuant to the Environmental Protection Agency's high-sulfur diesel fuel requirement (40 CFR 80.29); red dye is to be used for diesel fuel not subject to the EPA requirement.

The Internal Revenue Service recognizes that there may be some uncertainty concerning the color of dye to be used in Alaska and that many persons in Alaska have stocks of blue dye and blue-dyed diesel fuel. This uncertainty may have been caused, in part, by the preamble to the temporary regulations and by captions used in the regulations, both of which describe the dyeing rule by reference to sulfur content.

Alaska is not currently subject to the EPA dyeing requirement. Therefore, diesel fuel (including high-sulfur diesel fuel) removed from terminals in Alaska must be dyed red to qualify for tax-free treatment under the temporary regulations. Nevertheless, until current stocks are exhausted, persons in Alaska may use blue dye in high-sulfur diesel fuel and blue-dyed diesel fuel may be removed at terminal racks in Alaska without payment of tax; thereafter, red dye must be used to dye diesel fuel for federal excise tax purposes.

DRAFTING INFORMATION

The principal author of this notice is Frank Boland, Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Mr. Boland on (202) 622-3130 (not a toll-free call).