Diesel Tax Changes in 2025: What You Need to Know

State budgets often drive mid-year and new-year tax adjustments, making January and July key months for diesel tax updates. This July, 13 states introduced notable adjustments. In this blog, we highlight the diesel fuel tax per state that directly impact transportation costs and industry operations.

Significant diesel fuel tax per state increases

Several states introduced tax hikes, reflecting efforts to maintain consistent revenue streams for infrastructure needs:

• Washington State: Diesel excise tax increased by 9.0 cents, rising from 49.4 to 58.4 cents per gallon. The adjustment follows the May 2025 passage of the state transportation budget.
• Colorado: Diesel taxes went up by 4.0 cents, now reaching 32.5 cents per gallon. This arises from a 2021 state law meant to help ensure adequate funding for future transportation and infrastructure needs.
• Mississippi: A 3.0 cent increase raised diesel taxes to 21.0 cents per gallon. This is the first time in four decades that Mississippi has increased fuel taxes, resulting from major tax overhaul legislation.

Diesel fuel taxes compared to IFTA taxes

When we look at state taxes, there may be a difference between the diesel fuel tax rate and the International Fuel Tax Agreement (IFTA) fuel tax rate. For instance, in California, the state’s diesel fuel tax increased by 1.2 cents to 46.6 cents, but its component b, which is the second component of its IFTA tax rate, decreased by 6.4 cents to 50.5 cents, resulting in an overall lower IFTA diesel tax value of 97.1 cents. 

The complexity behind automatic diesel fuel tax adjustments

Many states employ automatic adjustment mechanisms, often tied to inflation or fuel prices, to keep diesel fuel tax rates aligned with economic conditions. These methods include: 

• Taxes based on a percentage of fuel prices
• Flat excise taxes
• Inflation-driven calculations

These systems allow states to sustain long-term funding for infrastructure and transportation projects, ensuring smoother operations and maintenance. However, they also present challenges for shippers and carriers managing fluctuating transportation costs.

Navigating the impact of diesel fuel tax per state changes

For shippers and carriers, staying informed about diesel fuel tax per state adjustments is critical to managing budgets and optimizing operations. These changes can directly influence freight costs, making it essential to proactively adapt strategies for fuel efficiency and cost management.

If you’re looking to understand how these adjustments affect your business and are interested in tailored solutions to optimize your transportation network, contact us! Breakthrough’s market-based fuel reimbursement solution, Fuel Recovery, calculates your exact reimbursement based on the time, tax, price, and geography of your individual freight movements.