Proper knowledge about the International Fuel Tax Agreement (IFTA) is the first step of staying in a lawful business. Compliance is a must if you belong in a member state or province.
But to make sure you’re filing your IFTA taxes right, you need to know what it’s all about first.
Table of Contents
- What is IFTA?
- How does the IFTA work?
- Requirements for IFTA
- How to file IFTA taxes?
What is IFTA?
The International Fuel Tax Agreement refers to the agreement of 48 states in the United States and 10 provinces in Canada for fuel taxation.
In this agreement, the fuel use reports of inter-jurisdictional carriers are made simple by using only one fuel tax permit across all the states and provinces that they enter.
What were the reasons that made the IFTA necessary? Well, before this agreement, motor carriers had to get fuel licenses from each state or province that they entered. This meant the loss of efficiency and additional costs for the trucking company.
Apart from that, motor fleets were required to file periods, definitions, rules, and requirements, which took a lot of additional work and made room for more errors.
To establish uniformity and increase the efficiency of processing, the 48 U.S. states, and 10 Canadian provinces came up with the IFTA.
Here are its members:
- British Columbia
- Prince Edward Island
- New Brunswick
- Nova Scotia
All of the states in the U.S. are members of the IFTA, with the exception of the District of Columbia, Alaska, and Hawaii.
How does the IFTA work?
The IFTA saves trucking businesses millions of dollars every year in fuel, processing, and operational costs. How does the agreement do this?
With the IFTA, motor carriers report the fuel they use across different jurisdictions to their home state. Their home state will then gather taxes based on total fuel used across all jurisdictions and process the tax returns on fuel.
Afterward, the home state will distribute the money to other states or jurisdictions whose roads were used by the heavy machinery. In this way, everyone is compensated fairly and in an efficient manner.
Requirements for IFTA
Motor carriers need to have an IFTA license (if they are based in a state or province that’s a member of the IFTA) before they can pass through two or more member states or provinces.
To qualify for an IFTA license, a motor vehicle needs to have the following characteristics:
- Used for the transport of people or property
- Have two axles & weigh more than 26,000 pounds
- Have any weight with three axles and above
- Have a weight of more than 26,000 pounds
If the vehicle meets the requirements of the IFTA, the carrier then needs to apply for a license. These are the basic requirements:
- Registered business name
- Federal business number
- Mailing address
- USDOT number
Requirements can be sent through the mail or through a fax machine. After processing, the IFTA office in your home state will send you the decals for the current year.
They may also send you a temporary license via fax as you anticipate the official stickers in the mail.
This annual license must be renewed and validated every year. IFTA decals must be placed on either door of the rig, and the trucker must carry all permits at all times.
If you want to learn more IFTA applications, click here.
How to file IFTA taxes?
A fleet’s fuel tax report must be submitted to the IFTA per quarter. In this report, these details must be included:
1. Total miles
Every mile that each truck covers must be recorded for the quarterly tax report. It’s the responsibility of both truck drivers and fleet managers to make sure they handle the Records of Duty Status in the most organized way possible.
On the drivers part, they must accurately and consistently record their odometer every time they cross state lines.
2. Fuel purchases
After the mileage is totaled, the net gallons of fuel bought must be added up and recorded. This piece of information will determine how much fuel you bought for that quarter.
However, you must include the following documentation:
- Driver’s name
- Purchase date
- Seller and location
- Fuel type
- Gallons bought
- Price per gallon
- Vehicle plate number
Again, this mostly relies on the trucker’s diligence every time fuel is purchased. To make the records as accurate as possible and to avoid human error, this process can be digitized using certain software.
Fleets must buy only what they need when it comes to fuel, meaning the gallons of fuel they purchase should be in the amount that they expect to use when driving through different jurisdictions.
With surcharges, IFTA member states are allowed to keep a part of the funds no matter where the fuel is consumed.
After gathering this information, taxes that are owed to each state and province in the IFTA can be computed using the following equations:
- Total Miles X Total Fuel Used = Net Fuel Mileage
- Total Miles in State X Net Fuel Mileage = Fuel Used in State X
- Fuel Tax in State X Fuel Tax Already Paid to State X = Net Fuel Tax To Return to State X
These formulas don?t take into account everything that may change the total tax due. Make sure to use them with discretion and make the necessary adjustments as you go along. Find out more info about IFTA reporting on their official website.
The IFTA requires all fleets to submit a quarterly report, even if no activity was conducted for that period. If a fleet fails to file for the quarterly tax return, they are given 30 days to submit their requirements.
If they fail to provide the requirements after 30 days, their IFTA license is suspended. The penalty for late payment is $50 or 10% of the total tax owed.
The International Fuel Tax Agreement makes it easier for fleets in member jurisdictions to file for fuel tax returns without having to get individual licenses for every state or province.
Hence, getting an IFTA license is a must for every qualified motor vehicle under the IFTA rules. Without it, your fleet may be losing the chance of saving thousands–if not millions–of dollars every year in operational and administrative costs.