Most people in the transportation industry have at least heard of IFTA (International Fuel Tax Agreement), but there is a lot of confusion regarding the rules. IFTA is one of the many regulations fleet owners must be aware of to ensure their operations are in compliance with the law. The responsibility for understanding and abiding by regulations often falls on the shoulders of fleet managers or owners of small fleets. With this step-by-step guide, fleets will better understand IFTA reporting regulations, what they entail and how to remain compliant.
What is IFTA (International Fuel Tax Agreement)?
The International Fuel Tax Agreement is a cooperative agreement that was made between 48 US states and 10 Canadian provinces. This regulation allows carriers to pay their fuel taxes across states and jurisdictions, using a fuel tax license. Members of the IFTA cooperative act together to collect and administer all taxes related to fuel usage. With IFTA, a carrier is only required to file one tax report that covers all jurisdictions. Currently, only two states, Alaska and Hawaii, are not members of IFTA. Northwest Territories, Nunavut and Yukon Territory are the three provinces in Canada that are also not members.
Why was IFTA created?
To better understand IFTA, it is important to know why it was created. Before IFTA was created, truckers had the laborious task of obtaining a fuel permit for every single state they entered. Truckers who traveled across the country often lost valuable time, had to pay fees and burned more fuel traveling to each permit purchasing center. The process was inefficient and inconvenient for truckers and fleets. Fleet owners and managers faced inconsistencies with rules, filing periods and reporting requirements. Often owners would spend countless hours performing clerical work to ensure they met the demands of the law. With IFTA in place, there is now consistency and efficiency in the process of paying fuel usage taxes among member states. It has been estimated to save truck fleets millions of dollars each year in administrative costs alone.
Which trucking fleets have IFTA reporting requirements?
A trucking fleet will need an IFTA license if they meet all three of the following conditions:
- They are headquartered in an IFTA member state.
- They operate across more than one member state.
- They operate IFTA qualifying vehicles.
An IFTA qualifying vehicle is one that is used to transport people or property and matches one of the following descriptions:
- Has two axles and a gross weight 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 a fleet is required to get an IFTA license, they will need to fill out the application in their member state. There is some basic information that is required for obtaining an IFTA license, including the following:
- Registered business name
- Mailing address
- Federal business number
- USDOT number
The IFTA license application can be downloaded online. Some jurisdictions require these forms to be mailed while others allow delivery by fax or through a taxpayer services office. Once the IFTA application has been processed, trucking fleets can be given a temporary license while they are waiting for their permanent license and decals to come in the mail.
How do you file your IFTA report?
Aside from knowing how to apply for an IFTA license, trucking fleets also need to be aware of the steps involved in filing their IFTA report. First, a trucking fleet needs to know when they are required to file their quarterly returns. The dates are as follows:
- The first quarter runs from January to March and is filed on April 30.
- The second quarter runs from April to June and is filed on July 31.
- The third quarter runs from July to September and is filed on October 31.
- The fourth quarter runs from October to December and is filed on January 31.
It is important to note that filing a return late will result in late fees. For trucking fleets to calculate their IFTA reporting correctly, they will need to follow these six steps for all IFTA apportioned vehicles:
- Track and calculate total taxable miles driven in each jurisdiction.
- Add the number of gallons of fuel purchased in each jurisdiction.
- Calculate the average miles per gallon for the quarter.
- Calculate the gallons of fuel consumed in each jurisdiction.
- Calculate the fuel tax owed or refund amount for each jurisdiction.
- Calculate the total IFTA tax owed or refund amount.
Many states have online IFTA filing options which can simplify the process. These systems only require the entry of total miles driven, total taxable miles driven in each jurisdiction and the number of gallons of fuel purchased in each jurisdiction. The system has the tax rates and does all the calculations for the IFTA return.
Fleet software that tracks mileage and a fuel card that provides IFTA fuel reports can greatly simplify this process. ELD or GPS can provide the total miles driven in each jurisdiction in a simple report. Fuel card providers can provide a summary of all fuel purchased by IFTA apportioned vehicles by jurisdiction. With these two pieces of information the remainder of the return is much simpler.
Step 1: Track and calculate total taxable miles driven in each jurisdiction.
GPS or ELD software can track this for a fleet and provide a simple report that summarizes the necessary information. For fleets tracking this manually, this can be time consuming if they do not have a good process for recording mileage reports. Fleets must be extremely organized or they could find it problematic to calculate the number of miles for each state and be subject to an IFTA audit. Drivers must document their odometer readings each time they cross a state line. Failure to do so could make calculating the miles driven in each state very difficult, if not impossible.
Using the odometer readings at each state line, they can calculate the miles driven in that state. This must be completed for all IFTA vehicles and jurisdictions. While taxable miles are usually the same as the total miles driven, a few jurisdictions allow for mileage exceptions. Some jurisdictions allow for fuel trip permit miles to be deducted from the total.
Step 2: Add the number of gallons of fuel purchased in each jurisdiction.
Fleets will need to know the total gallons of fuel that were purchased in each jurisdiction. It is important to note that drivers must submit the original receipts or a qualified fuel card invoice for their fuel purchases. 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
Fleets need to be careful to ensure they include all fuel purchases for the quarter. This is one of the most important pieces of information, and omissions and mistakes can be costly. Some fuel card companies, like P-Fleet, will provide their customers with a free IFTA fuel report that details and summarizes all fuel purchases by vehicle by state to simplify this process.
Step 3: Calculate the average miles per gallon for the quarter.
This calculation is fairly simple since 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 example, if a fleet drove 25,000 miles and purchased a total of 5,000 gallons of fuel, then their average miles per gallon is 5.00 (25,000 ÷ 5,000 = 5.00 mpg). It is important to note that the miles per gallon should be rounded to two decimal points.
Step 4: Calculate the gallons of fuel consumed in each jurisdiction.
Determine the number of gallons consumed in each jurisdiction:
- Fuel Consumed in the State = Total Miles Driven in the State ÷ Overall Fuel Mileage
The above formula must be used for each state or province that the fleet operated in during the quarter.
Step 5: Calculate the fuel tax owed or refund amount for each jurisdiction.
The amount of fuel tax the fleet owes or is owed by each jurisdiction is calculated by the following formulas:
- Net Taxable Gallons (may be a negative number) = Gallons Consumed – Gallons Purchased
- Tax Owed or Refund Amount = Net Taxable Gallons x Tax Rate
If a jurisdiction that was travelled in has a fuel tax surcharge, then they must calculate the additional 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 will require inclusion of the Surcharge Calculation on a separate line of the fuel tax report. The fuel tax a fleet owes is dependent on the current rates for each quarter. This information can be found on the International Fuel Tax Agreement website. These rates are subject to change until the next quarterly due date, so there is no need to perform this calculation until the quarter is over and the filing is due.
Step 6: Calculate the total IFTA tax owed or refund amount.
Add all the Fuel Tax Owed and Refund Amounts from each jurisdiction in step 5 to calculate the Total Amount Owed or Refund Amount for your IFTA reporting return.
Following the steps in this IFTA reporting guide will help fleet owners and managers better understand what is involved with obtaining a license and what needs to be included when filing quarterly returns. When in doubt, visit the IFTA website for more detailed information, including the tax rates for each quarter.
Frequently asked questions
- What is the penalty for filing your IFTA report after the due date? Late payments are subject to a $50 penalty or 10% of taxes owed, whichever is greater. Late filings are also subject to a daily interest rate which changes periodically.
- How do I file an IFTA report? Some jurisdictions have online filing requirements while others allow for mailed returns. If the return is filed electronically, then it is considered received on the date it was submitted. If the return is filed my mail, then it is considered received by the postmark date.
- What if a fleet only operated in a single state for the quarter? They still must file a quarterly IFTA report for that quarter.
- What are the alternatives to registering for an IFTA license? Fleets can purchase fuel trip permits to travel through member jurisdictions.
- When do IFTA decals expire? Decals expire on December 31 of each year, but there is a two-month grace period that extends into the next year.
Helpful links to state IFTA websites and filing options
- Alabama – Online or by mail
- Arizona – Online or by mail
- Arkansas – Online or by mail
- California – Online or by mail
- Colorado – Online or by mail
- Connecticut – Online or by mail
- Delaware – Online or by mail
- Florida – Online or by mail
- Georgia – Online or by mail
- Idaho – Online or by mail
- Illinois – Online only
- Indiana – Online or by mail
- Iowa – Online or by mail
- Kansas – Online or by mail
- Kentucky – Online only
- Louisiana – Online or by mail
- Maine – Online or by mail
- Maryland – Online or by mail
- Massachusetts – Online or by mail
- Michigan – Online only
- Minnesota – Online or by mail
- Mississippi – Online only
- Missouri – Online or by mail
- Montana – Online or by mail
- Nebraska – Online or by mail
- Nevada – Online or by mail
- New Hampshire – Online or by mail
- New Jersey – Online or by mail
- New Mexico – Mail only
- New York – Online or by mail
- North Carolina – Online or by mail
- North Dakota – Online or by mail
- Ohio – Online or by mail
- Oklahoma – Online or by mail
- Oregon – Online or by mail
- Pennsylvania – Mail only
- Rhode Island – Mail only
- South Carolina – Mail only
- South Dakota – Online or by mail
- Tennessee – Online or by mail
- Texas – Online or by mail
- Utah – Mail only
- Vermont – Mail only
- Virginia – Online or by mail
- Washington – Online or by mail
- West Virginia – Mail only
- Wisconsin – Online or by mail
- Wyoming – Online or by mail