Red-dyed diesel fuel is taxed at a lower rate than regular diesel fuel.

BISMARCK, N.D. - Legislators heard testimony Friday from those supporting higher fines for drivers who illegally fill their tanks with red-dyed diesel fuel meant for agricultural use.

The benefit of using red-dyed diesel fuel is that it is taxed at a lower rate than regular diesel fuel.

Kevin Schatz, motor fuels and oil and gas tax supervisor for the North Dakota Tax Department, testified before the House Agriculture Committee that red-dyed diesel is 44 cents per gallon cheaper. Whenever a driver illegally fills with red diesel, the state loses 19 cents per gallon in fuel sales tax. The tax on fuel is part of what pays for road maintenance in the state.

“If you’re going to use the roads, you have a responsibility to pay for the maintenance of those roads,” said Dan Rouse, an attorney for the state Tax Department.

SB2294 would raise fines for using red-dyed diesel from $250 to $1,000 for the first violation, from $500 to $2,000 for the second violation within three years of the first, from $1,000 to $4,000 for a third violation occurring within three years of two previous violations, and from $5,000 to $10,000 for the fourth and subsequent violations occurring within three years of three or more previous violations.

The bill also would allow stickers to be placed on red-dyed diesel fuel pumps informing customers about the fine for a first-time violation. The bill passed by 44-1 in the Senate.

The Tax Department’s enforcement program started in 2011, Schatz said. It was decided to start the program because members of the public were calling and complaining when they saw others illegally filling their vehicles with red-dyed diesel. Schatz said the tax department hoped if there was a presence people would “think twice” before breaking the law.

Equipment and training for the program was paid for with a grant from the Internal Revenue Service. The Tax Department follows IRS regulations and the IRS tests all samples of diesel fuel taken by Tax Department employees during compliance checks for free. Schatz said the tax department works with the North Dakota Highway Patrol to do fuel compliance checks during roadside safety inspections.

If a person is found to have red-dyed fuel in their tank, a sample is taken and sent to the IRS for testing. The person has 24 hours to drain the tank and change the fuel filter. If the sample comes back positive for red-dyed diesel, a fine is assessed. Schatz said most violators are drivers of pickups.

Rouse said the legislation would also “enlarge the scope” of what the Tax Department can do by allowing it to work with local and county law enforcement on compliance checks.

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Because of the short scope of the enforcement program and the small number of vehicles tested, Schatz said, no repeat violators have been found.

Some legislators on the committee expressed concerns over raising the fines if there were no repeat violators.

“With no indication that the current fines are not enough, I wouldn’t vote for it,” said Rep. Craig Headland, R-Montpelier.

Rep. Alan Fehr, R-Dickinson, said if violators think they’re unlikely to get caught, they will take the risk.

“At some point, raising the fine doesn’t lead to compliance,” he said.

Rep. Wesley Belter, R-Fargo, suggested that the function of enforcement might be better performed by the Highway Patrol. Rouse said the patrol is already busy and checking for fuel compliance is not a high priority. The Tax Department has the resources and a low cost of operation.

Mike Rud, president of the North Dakota Petroleum Marketers Association, said his group also supported the legislation. He said many marketers also have heard complaints from customers about violators and marketers “want no part” of selling fuel to those who use it illegally.

“It’s just another way to keep a handle on this,” he said.

No action was taken on the bill Friday. The Agriculture Committee will vote on its recommendation Thursday.

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Reach Jessica Holdman at 701-250-8261 or jessica.holdman@bismarcktribune.com.