Understanding IFTA (International Fuel Tax Agreement)

 

What is IFTA (International Fuel Tax Agreement)?

IFTA, or the International Fuel Tax Agreement, is an agreement between the lower 48 states of the United States and 10 provinces of Canada, aiming to simplify the reporting of fuel use by motor carriers operating in more than one jurisdiction. Established to create a cooperative system of tax collection, it eliminates the need for truckers and other inter-jurisdictional operators to file separate fuel use reports in each state or province they travel through.

Why was IFTA created?

Prior to IFTA, commercial motor carriers and truckers had to obtain fuel permits from every state they drove through. This process was cumbersome and inefficient. IFTA was created to streamline this process and reduce paperwork, as well as ensure full and efficient tax collection for all jurisdictions. The goal was to enable interstate commercial transportation to proceed smoothly while allowing each jurisdiction to receive its fair share of fuel tax revenue.

Jurisdictions falling under IFTA scope (USA, Canada)

IFTA currently covers 48 states in the U.S., excluding Alaska and Hawaii, and 10 Canadian provinces, including Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan.

IFTA Compliance and Requirements

Who needs to register for IFTA?

Motor carriers operating their qualified motor vehicles interstate or internationally between two or more member jurisdictions are required to register for IFTA. Qualified motor vehicles are typically those designed for or capable of transporting people or goods, having two axles and a gross vehicle weight exceeding 26,000 pounds, or a vehicle with three or more axles, regardless of weight.

Main IFTA requirements

Part 1 – Business Information

Motor carriers must provide detailed business information, including legal business name, Doing Business As (DBA) name, if applicable, Federal Tax ID number or Social Security number, and a U.S. DOT number.

Part 2 – Fuel Activity

Motor carriers must maintain detailed records of their fuel activity. This includes the amount of fuel purchased, the price, and the location of the purchase.

Part 3 – Certification

Motor carriers must certify that all the information they provide is accurate to the best of their knowledge and that they understand the regulations and requirements set forth by IFTA.

IFTA application and documentation requirements

In addition to the business information, fuel activity, and certification, motor carriers must also provide proof of insurance, vehicle information (including Vehicle Identification Numbers and gross vehicle weight), and any relevant lease agreements.

Calculating IFTA Taxes

How to calculate IFTA taxes

Calculating IFTA taxes involves multiple steps that need to be done accurately to ensure proper tax reporting and payment. The process includes the following:

Step 1: Track and calculate total taxable miles driven in each jurisdiction

Record all miles driven in each IFTA jurisdiction during the quarter, including both loaded and empty miles, and exclude any non-taxable miles like fuel mileage.

Step 2: Add the number of gallons of fuel purchased in each jurisdiction

Keep track of all fuel purchased in each jurisdiction, ensuring to record only taxable fuel purchases.

Step 3: Calculate the average miles per gallon for the quarter

This is done by dividing the total miles driven by the total gallons of fuel purchased.

Step 4: Calculate the gallons of fuel consumed in each jurisdiction

To do this, divide the total taxable miles driven in each jurisdiction by the average miles per gallon.

Step 5: Calculate the fuel tax owed or refund amount for each jurisdiction

For each jurisdiction, subtract the gallons of fuel purchased from the gallons of fuel consumed. Multiply the result by the tax rate of the jurisdiction to find the tax owed. If the result is negative, you’ve overpaid and may be due a refund.

Step 6: Calculate the total IFTA tax owed or refund amount

Add together the tax owed or refund amounts from all jurisdictions to find the total IFTA tax owed or refund amount.

IFTA Reporting Process

How does IFTA reporting work?

Each quarter, carriers must file an IFTA fuel tax report with their base jurisdiction, i.e., the state or province where their qualifying vehicles are registered. This report includes the total miles traveled, fuel purchased and consumed, and tax paid in each IFTA jurisdiction.

Overview of the IFTA reporting process

To start, carriers compile their fuel and mileage records for the quarter, ensuring to separate the data by jurisdiction. They calculate the tax due as outlined in the tax calculation section above and then fill out their base jurisdiction’s IFTA tax report form.

Detailed return instructions

These can vary by jurisdiction, but typically, you’ll need to:

• Total all miles traveled and all fuel purchased in each jurisdiction.
• Divide the total miles traveled by the total gallons purchased to get the average miles per gallon.
• For each jurisdiction, multiply the total miles traveled by the average miles per gallon to find the total gallons used.
• Subtract the total gallons purchased from the total gallons used to find the net taxable gallons.
• Multiply the net taxable gallons by the tax rate for each jurisdiction to find the tax due.

 

Filling quarterly IFTA fuel tax reports

Part 1 – Mileage

Record the total miles, both taxable and non-taxable, traveled in each jurisdiction. This includes loaded, empty, deadhead, and bobtail miles. Personal miles and miles traveled for vehicle maintenance are usually non-taxable.

Part 2 – Fuel Receipts

Record all fuel purchases made in each jurisdiction, ensuring to separate taxable and non-taxable purchases. Include the date of purchase, quantity of fuel, type of fuel, and location of purchase.

Part 3 – States

List all the jurisdictions in which you traveled during the quarter, even if you didn’t purchase fuel or travel many miles in a particular jurisdiction.

Part 4 – Fuel Tax Reporting Periods

Ensure to keep the data organized by quarter and year. IFTA tax reports are due quarterly.

Reporting dates and deadlines

Quarterly IFTA reports are due on the last day of the month following the end of each quarter. If the due date falls on a weekend or state holiday, the due date is the next business day.

Tips for IFTA reporting

To avoid penalties, make sure you file your reports and pay any taxes due on time. Keep your mileage and fuel records accurate and up-to-date, as inaccuracies can lead to audits and penalties. Invest in fuel tax software or a professional tax preparer to ensure accuracy and compliance.

IFTA Exemptions and Exceptions

International Fuel Tax Agreement exemptions

Recreational vehicles, such as motor homes and pickup trucks with attached campers, and buses used for personal activities, are exempt from IFTA requirements.

Non-IFTA jurisdictions (USA, Canada)

Alaska, Hawaii, and the Canadian territories of Yukon, Northwest Territories, and Nunavut are not part of IFTA.

Single-Trip Permits and alternative options

If you occasionally travel in other jurisdictions and do not have an IFTA license, you can obtain a single-trip permit. This allows you to operate in another jurisdiction without having to comply with IFTA requirements.

Streamlining IFTA Compliance with Technology

How fleet management solutions help with IFTA compliance

Fleet management solutions can automatically track mileage by jurisdiction and fuel purchases, making IFTA reporting more accurate and less time-consuming. They can also help identify fuel tax savings opportunities and ensure timely and compliant filing.

Benefits of using technology for IFTA reporting

Using technology reduces manual data entry and the risk of errors. It also saves time and allows for real-time tracking and reporting, making it easier to manage and maintain compliance.

Streamlining IFTA reporting with modern technology

Modern technology, such as GPS tracking and fleet management software, can significantly streamline the IFTA reporting process. They provide accurate, real-time data and automatic calculations, making the process more efficient and reliable.

Advanced Logistics Solutions Dispatch Services offers one of the best truck dispatch services to owner operators and carriers across USA. We offer other back-office solutions such as compliance and accounting to carriers in addition to our truck dispatch services to help our carriers succeed in this competitive yet rewarding trucking industry. At ALS, our truck dispatchers don’t just dispatch, they go the extra mile to help build relationships to help carriers grow their business. Its where professionalism meets quality. Visit www.advancedlogisticssolutionsinc.com to learn more about our processes and how our method of truck dispatching can help you succeed and grow your business.