Stone, that story sounds incorrect.
As mentioned already, it was probably because of buying it wholesale. If the vehicle goes on the road it has have road taxes paid on its fuel. An exception is machines that are not normally driven on roads and cannot registered as road-going vehicles, like farm machinery and most construction equipment.
I have bought both gasoline and diesel from suppliers, and did not have to pay road taxes on either for my operations. However, I always paid retail for the gas even though it was used in small mowers and golf carts, because it always seemed that the owner or their kid would decide to just fill up at the tank instead of in town at the station. The thing is, because of delivery charges on the relatively small quantities, the price per gallon was higher than at the station, so I always filled up the work truck in town.
Diesel for machines that are for off-highway use, like mowers, backhoes, etc., was always purchased wholesale. The diesel was dyed red, and if a road-going vehicle like a dump truck or water truck had it in its tank and was stopped on the road and checked, it was a $1,000 fine. I had fully taxed diesel in drums for the diesel pickup truck we had, and got into arguments with guys not under my direction who didn't want to hassle with the hand pump on the drums until I started insisting that my workers always padlock the big tanks after filling a machine and return the keys to me.
It really tweaked 'em.
Hmm, wonder if it had something to do with zoning regulations and I just interpreted it as "the man keeping him down" haha, it's possible... Lol