A truck driver, fleet owner, or a carrier would be aware of International Fuel Tax Agreement (IFTA). But their understanding is not perfect, because there are a lot of grey areas in IFTA compliance.
IFTA is important it should be understood properly and it should be thoroughly complied with. Everybody from the driver to the fleet manager or owners should have an understanding of the IFTA.
We are writing this step-by-step guide to understanding and complying with IFTA, to help you understand the reporting regulations, their scope is, and how to remain compliant.
- What is IFTA (International Fuel Tax Agreement)?
- Why was IFTA created?
- Which trucks and fleets have IFTA reporting requirements?
- What is the step-by-step process of filing your IFTA report?
- Step 1: Track and determine the total taxable miles driven in each jurisdiction.
- Step 2: Add the quantity or gallons of fuel purchased in each jurisdiction.
- Step 3: Compute the average miles per gallon for the quarter.
- Step 4: Find out the gallons of fuel consumed in each jurisdiction.
- Step 5: Compute the fuel tax owed or refund amount for each jurisdiction.
- Step 6: Find out the total IFTA tax owed or refund amount.
- FAQ on IFTA Filing:
What is IFTA (International Fuel Tax Agreement)?
The International Fuel Tax Agreement (IFTA) is a cooperative agreement between 48 US states and 10 Canadian provinces. Only Hawaii and Alaska is not part of this agreement.
Northwest Territories, Nunavut, and Yukon Territory are the three provinces in Canada that are also not members.
IFTA reduces complexity in fuel taxes by allowing drivers or fleet owners to pay taxes in a jurisdiction using a fuel license. Members of IFTA cooperatively act to administer and collect all taxes related to fuel usage.
Because of IFTA carrier is only required to file fuel usage and tax report that covers all jurisdictions.
Why was IFTA created?
Not a long time ago truckers had to take up the laborious task of obtaining fuel permits from every single state they entered. Truckers who traveled across the US and Canada, lost valuable time, also had to pay high fees, and even burned fuel for getting to the fuel permit purchasing center.
Before IFTA the fuel tax process was non-transparent, inefficient, and inconvenient for truckers and fleet owners. There were many legal inconsistencies connected to fuel tax, filing periods, and even reporting requirements.
Fleet owners and managers faced inconsistencies with rules, filing periods, and reporting requirements. Often owners had to take the responsibility of calculating and paying the fuel tax. This means they lost countless hours doing clerical paperwork and calculations to ensure that their company met the fuel tax compliance.
IFTA has brought about transparency, efficiency, and consistency in reporting fuel usage and in paying fuel taxes in its member states and provinces, It has been estimated to save truck fleets millions of dollars each year in administrative costs alone
Which trucks and fleets have IFTA reporting requirements?
A trucking fleet needs an IFTA license, if it meets the following conditions:
- HQ of the fleet should be in an IFTA member state.
- A trucking company must have operations across more than one member state
- The truck operated by the trucking company is IFTA qualifying vehicles
An IFTA qualifying vehicle is used to transport property, people and matches one of the following descriptions:
- Has two axles and a gross weight of over 26,000 pounds or 11,797 kilograms.
- Has three or more axles regardless of its weight.
- Is used in combination, when the weight of such combination exceeds 26,000 pounds or 11,797 kilograms gross weight.
If your truck or fleet needs to get an IFTA license, they will need to fill out the application in your member state. The basic details needed to obtain an IFTA license are the following:
- Name of the registered business
- Postal address
- Federal business number
- USDOT number
The IFTA application could be downloaded online. Some jurisdictions need the IFTA documents to be mailed while others allow delivery by fax or through a taxpayer services office. Trucking Fleets are given a temporary licenses once the application is processed, and fleets are given a temporary license while they are waiting for licenses and decals to come in the mail.
What is the step-by-step process of filing your IFTA report?
As a fleet owner or trucker, you need to know how to apply for an IFTA license and when and how to file an IFTA report. As an owner of a fleet or driver, you need to know when to file IFTA quarterly returns. Due dates for IFTA are as follows:
- 1st quarter runs from January to March and is filed on April 30.
- 2nd quarter runs from April to June and is filed on July 31.
- 3rd quarter runs from July to September and is filed on October 31.
- 4th quarter runs from October to December and is filed on January 31
As an owner or trucker, you need to know that filing the IFTA return late may result in late fees. To calculate IFTA Correctly trucking fleets need to follow these six steps for all IFTA apportioned vehicles:
- Track and compute total taxable miles driven in each jurisdiction.
- Add the number of gallons of fuel purchased in each jurisdiction.
- Find out the average miles per gallon for the quarter.
- Find out the gallons of fuel consumed in each jurisdiction.
- Find out the fuel tax owed or refund amount for each jurisdiction.
- Find out the total IFTA tax owed or refund amount.
Online IFTA filling in many states can simplify the process. In these online systems, you are supposed to enter the total miles driven, total taxable miles driven in each jurisdiction, and the number of gallons of fuel purchased in each jurisdiction. The system has all the rates of taxes and it automatically calculates your state by state IFTA return.
Fleet software that tracks total mileage and a fuel card that presents IFTA reports can really simplify this process.
Using GPS and ELD you can see total miles driven in each jurisdiction is generated in an easy-to-read report. A fuel card can provide the summary of fuel purchased by IFTA apportioned vehicles by jurisdiction. Having these 2 pieces of information simplifies the IFTA filing process.
Step 1: Track and determine the total taxable miles driven in each jurisdiction.
ELD and GPS can provide you a simple, easy-to-understand IFTA summary report.
Fleets with a subpar manual mileage and fuel consumption recording method will find it difficult to comply with IFTA.
Fleets need to be very organized or they will find it difficult and problematic to calculate the number of miles for each state and be subject to IFTA audit.
Drivers should record their odometer readings every time they cross from one state to another. If you don’t have a systematic record of miles driven in each state, IFTA filing will be impossible or very difficult.
Using odometer reading in each state, drivers and owners can find the miles driven in each state. If you have multiple qualified vehicles, this process must be completed for each vehicle and each jurisdiction. Few jurisdictions allow mileage exceptions, factor that to your IFTA calculations. Some states or provinces allow fuel trip permit miles to be deducted from the total.
Step 2: Add the quantity or gallons of fuel purchased in each jurisdiction.
Trucks or fleets need to know how much fuel, they have purchased in each jurisdiction. Drivers must submit the original receipts or qualified fuel card invoices for each fuel purchase. These documents must contain the following pieces of information:
- Date of the fuel purchase
- Seller’s name and location
- Type of fuel that was purchased
- Vehicle’s plate number
- Number of gallons of fuel purchased
- Price for each gallon
- Truck driver’s name
All fuel purchase in a quarter should be included, fleet need to make sure they do it. Fuel invoices or bills are one important piece of information and omission and mistakes can be very costly.
Step 3: Compute the average miles per gallon for the quarter.
This calculation of average miles is fairly simple to find the total miles driven in step 1 and the total gallons purchased in step 2 have been determined:
Average Miles Per Gallon = Total Miles Driven ÷ Total Gallons Purchased
For instance, if one fleet drove 15000 miles and purchased a total of 5000 gallons of fuel, then their average miles per gallon is 3.00 (15,000 ÷ 5,000 = 3.00 mpg). The miles per gallon got using the formulae should be rounded of to two decimal places.
Step 4: Find out the gallons of fuel consumed in each jurisdiction.
Find out the number of gallons consumed in each jurisdiction:
Fuel Consumed in the State = Total Miles Driven in the State ÷ Average Fuel Mileage
Use the above formulae in ea h state or the province that your fleet is operating in during the quarter.
Step 5: Compute the fuel tax owed or refund amount for each jurisdiction.
The amount of fuel tax a fleet owes or is owed by each province or state is calculated by the following formula:
Net Taxable Gallons (maybe a negative number) = Gallons Consumed – Gallons Purchased
Tax Owed or Refund Amount = Net Taxable Gallons x Tax Rate
If the jurisdiction traveled has a fuel surcharge, then you need to figure out the extra tax owed.
Since these surcharges are not paid at the pump, they owe the tax on Gallons Consumed:
Surcharge Tax Owed = Gallons Consumed x Surcharge Rate
Most IFTA reporting requires the inclusion of surcharge calculation on a separate line of the fuel tax report. Current rates of each quarter decide the fuel tax each fleet owes. This info can be found on the IFTA website.
IFTA rates are subject to change until the next quarter’s due date arrives, so there is no rush to perform the calculation until the quarter is over and the filing is due.
Step 6: Find out the total IFTA tax owed or refund amount.
Add entire fuel tax owned and refund amounts from each state or province in step 5 to calculate the total amount owned or refund amount for your IFTA return.
The article provides you an IFTA reporting guide, which helps truckers and fleet owners, and managers to clearly figure out what is involved in getting an IFTA license, and what needs to be added on while filing IFTA quarterly returns.
If you are doubtful of any step or activity you can always visit the IFTA website for more detailed information, including the tax rates for each quarter.
FAQ on IFTA Filing:
Who participates in IFTA?
48 US states and 10 candian provinces participate in IFTA.
Why is IFTA required?
IFTA helps to determine how much fuel tax is owed to each jurisdiction,it is calculated based on miles driven in each jurisdiction.
How does IFTA fuel tax work?
A truck obtians IFTA fuel tax permit from one state. When the trucker drives through any IFTA participant state or province, fuel tax on purchased fuel is credited to the IFTA permit owners account.
What is the IFTA operating principle?
IFTA fuel tax owed is computed based on where the fuel was consumed. Tax credit is figured based on whether the fuel was purchased. IFTA finds the difference between fuel consumed and fuel purchased for each jurisdiction.
How is IFTA calculated?
Based on how many gallons of diesel you are burning in each jurisdiction you IFTA tax is calculated. You do not have the data on that, so we need to calculate based on what you know. You know how many miles you ran in a state or province also you know how many gallons of diesel you bought in each jurisdiction.
How often is IFTA filed?
IFTA is filled once every quarter, so you have to file IFTA 4 times a year.
What are taxable gallons?
Taxable gallons are the gallons used while traveling through each jurisdiction and is calculated by dividing the total taxable miles by the average miles per gallon.
How are IFTA miles calculated?
Figure out the number of miles your qualified IFTA vehicle has run during the quarter , it could be both IFTA and non IFTA jurisdiction. Subtract odometer readings on each vehicle at the start of the quarter from the readings at the end of the quarter to reach IFTA Niles run.
Other urgent requirements for a owner operator
There are a few operational adjustments an owner operator should make while he/she is in the nascent stages of operation. Like enlisting a dispatcher help you get good and well-paid loads.
Secondly, you need a good insurance agency or provider covering you for various circumstances or policy types. You need to take 3rd party liability, cargo, uninsured motorist, trailer, or equipment insurance.
We need to enlist a factor who has competitive rates and above par service quality to make your business financial bottleneck-free. This will help you to have a good cash flow and working capital.