Understanding IFTA for Trucking Companies
If you manage a fleet, it is your responsibility to understand and adhere to the rules and regulations put in place by any governing agencies. This includes licensing, USDOT numbering, hours-of-service, and the International Fuel Tax Agreement (IFTA). But some of these compliance rules can be complicated and confusing. One example of this is IFTA.
So, what is IFTA and what does it mean for your trucking business? We are going to go over everything you need to know to understand and comply with IFTA requirements and regulations.
What is IFTA?
IFTA is an agreement among the 48 contiguous states of America and all 10 provinces of Canada. This agreement was put in place to help simplify the reporting of fuel use taxes by interstate motor carriers. Basically, IFTA allows motor vehicles that travel across numerous states and provinces to report and pay for their fuel taxes using a single fuel tax license.
Although complicated, IFTA was originally implemented to help trucking companies. Before IFTA was established, truckers and fleet managers needed to obtain fuel permits from every state they entered. You can imagine how inefficient and frustrating this would be.
Not only did this lead to additional costs in various fees for each permit, but it also meant fleets had to deal with inconsistent rules, definitions, filing periods, and reporting requirements.
By implementing IFTA, trucking companies no longer have to worry about multiple fuel permits, but can instead find uniformity and efficiency in fuel tax payments across states and Canadian provinces. It has been estimated that IFTA has saved hundreds of millions of dollars annually in administrative costs for businesses.
IFTA Requirements: Who Needs a License?
Carriers are required to have an IFTA license if they are based in a member state (all U.S. states except Hawaii, Alaska, and the District of Columbia) and operate a qualified motor vehicle across two or more member jurisdictions.
A qualified motor vehicle is defined by IFTA as “a motor vehicle used, designed, or maintained for the transportation of persons or property.” IFTA also defines a qualified motor vehicle as:
- Having two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds or 11,797 kilograms; or
- Having three or more axles regardless of weight; or
- Is used in combination, when the weight of that combination exceeds 26,000 pounds or 11,797 kilograms gross vehicle or registered gross vehicle weight;
- Not a recreational vehicle
How IFTA Works
Fleet managers will apply for IFTA in their base jurisdiction, which will then issue a license and decal. As qualified motor vehicles buy fuel, fuel taxes are credited to that licensee’s account. At the end of each fiscal quarter, the licensee must complete their fuel tax report which will determine the tax liability to each jurisdiction. The fuel taxes are then paid to the base jurisdiction, which is then responsible for distributing the funds to other jurisdictions accordingly.
Filing IFTA Taxes
As mentioned above, a carrier will file taxes quarterly in their base state. To file, fleet managers and drivers will first need to determine the number of miles traveled in each of the different jurisdictions. Then, they will need to determine the total gallons of fuel purchased in each jurisdiction. It is important to note that carriers must retain the original receipts or invoices to prove that fuel tax was paid.
Using the total miles traveled and total fuel purchased, carriers will calculate the fuel mileage of their vehicles for each jurisdiction. Fuel mileage can be calculated by using this formula:
Total Miles Driven / Total Gallons = Overall Fuel Mileage
Total Miles Driven in Jurisdiction X / Overall Fuel Mileage = Fuel Consumed in Jurisdiction X
You will then use the fuel consumed in each jurisdiction to calculate the tax amount you owe for that quarter. The tax rates can be found on the International Fuel Tax Association website and are subject to change each quarter.
Using fuel receipts, you will finally determine the amount of taxes owed using this formula:
Fuel Tax Required in Jurisdiction X – Fuel Tax Paid in Jurisdiction X = Fuel Tax Owed to Jurisdiction X
The formulas above are a base for tax reporting, but it’s always important to follow all IFTA requirements. For example, in certain states such as Kentucky, New Mexico, and New York, there are “weight-mile” taxes in addition to the standard fuel tax. Make sure you know about any special circumstances you may face when filing your IFTA taxes.
IFTA Trucking Consultants
When going through the process of documenting, calculating, and filing your IFTA taxes, it is often complicated to determine the total miles traveled and fuel purchased in each state and province. To manually track these numbers, it takes extreme organization between fleet managers and truck drivers.
Because of this, many fleet managers find it efficient and cost-effective to hire trucking consultants to assess and improve their process. Consultants are able to bring an unbiased perspective to your company’s needs, helping you determine the best practices for filing IFTA taxes, improving your profitability, and allowing you to focus more on what really matters- your trucking business.
Trincon’s Trucking Services
If you are looking to improve and grow your trucking business, check out Trincon’s trucking consulting services. More than just helping with IFTA, our consultants assess your business and put together an actionable plan to achieve your specific goals. From trucking software to truck driver recruiting and retention plans, we can help your company achieve profitability and sustainable growth. See how Trincon can help you today!