Can I make tax-free sales of undyed diesel fuel to state and local government?

Yes. You must pay the tax at the time of purchase and file a claim for refund. However, if the governmental unit pays with a third party credit card, the deduction may not be taken.

The issuer of the third party credit card must bill the governmental entity without the tax and file a refund claim. Sales invoice documentation of the tax-free sales must be maintained. The tax-free sales to state and local governmental units are not subject to the 100-gallon limitation.

The deduction is found in Section 34 of the Act. More.

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