The International Fuel Tax Agreement (IFTA) plays a crucial role in regulating the fuel taxes paid by commercial motor carriers operating across multiple jurisdictions. It is an agreement among the United States and Canadian provinces, designed to simplify the reporting and payment of fuel taxes. In this blog post, we will explore what the IFTA is, discuss why it is essential to understand its provisions, delve into the process of tracking miles and fuel in each state, and provide insights on how to effectively report your IFTA obligations.
What is the International Fuel Tax Agreement?
The International Fuel Tax Agreement (IFTA) is an agreement between the United States, the District of Columbia, and ten Canadian provinces. Its primary objective is to establish a uniform system for the collection and distribution of fuel taxes paid by motor carriers operating in multiple jurisdictions or interstate travel. Drivers join IFTA in their home state and as they drive to other states and purchase fuel, the tax on that fuel is credited to the driver’s account. At the end of each quarter, taxes on fuel are due and drivers are responsible for knowing the amount of fuel tax they are liable for.
The IFTA is useful for streamlining paperwork and burdens of reporting on fuel tax liability for various types of fuel. IFTA assists drivers by calculating the amount of tax due or the tax credit for each state a driver goes through.
Importance of Understanding the IFTA
Understanding the IFTA is essential for motor carriers for several reasons:
Compliance: Complying with the IFTA regulations ensures that carriers avoid penalties, fines, or legal complications that may arise due to non-compliance.
Cost Efficiency: Proper understanding of the IFTA enables carriers to accurately calculate fuel taxes based on mileage and fuel consumption, helping them manage costs effectively.
Simplified Reporting: By consolidating fuel tax reporting requirements, IFTA simplifies the process for carriers operating across different jurisdictions, reducing administrative burden and paperwork.
Tracking Miles and Fuel in Each State
Accurate tracking of miles and fuel in each state is crucial for calculating and reporting IFTA obligations. Here are some methods to consider:
Electronic Logging Devices (ELD): Utilize ELDs to track and record distance traveled in each jurisdiction. ELDs automatically capture essential data, reducing manual errors and providing accurate mileage records.
GPS Systems: Integrate GPS systems with ELDs to track and record precise locations and routes. This data is vital for determining the number of miles traveled in each state or province.
Fuel Receipts and Invoices: Maintain fuel receipts and invoices as evidence of fuel purchases. These documents help verify fuel consumption and support accurate reporting.
Trip Sheets and Driver Logs: Record trip details, including starting and ending locations, routes taken, and odometer readings. Trip sheets and driver logs provide additional documentation for accurate reporting. Utilize mileage and fuel tracking spreadsheets, such as our Definitive “All-in-One” Trucking Business Spreadsheet, to accurately track crucial fuel and mileage information.
Reporting IFTA Obligations
To report IFTA obligations effectively, follow these essential steps:
Quarterly Reporting: Carriers must file IFTA reports quarterly, summarizing their operations and fuel consumption during the reporting period. See the standard IFTA schedule below (this may vary from state to state):
- Quarter 1 (January 1 - March 31) - Due April 30
- Quarter 2 (April 1 – June 30) – Due July 31
- Quarter 3 (July 1 – September 30) – Due October 31
- Quarter 4 (October 1 – December 31) – Due January 31
*A return must be filed even if you had no activity that quarter!
Record Keeping: Maintain accurate records of mileage, fuel purchases, and other relevant documentation to support your IFTA reporting.
Calculate Fuel Taxes: Use the IFTA fuel tax rate for each jurisdiction to calculate the amount owed. The current tax rates are published on the IFTA website (not to be confused with your jurisdiction's IFTA reporting website). Most jurisdictions will have an online reporting system that will calculate the amount owed once you provide your mileage and fuel purchased in each jurisdiction. Our Definitive “All-in-One” Trucking Business Spreadsheet has a built-in IFTA calculator for you to utilize. Simply enter the fuel you purchased in each jurisdiction, miles driven in each jurisdiction, and the current tax rates for each jurisdiction to view your total tax due. This will also allow you to verify that the tax due is equivalent to your jurisdiction’s online system calculations.
Filing the IFTA Return: Submit the IFTA return each quarter to the appropriate jurisdiction's tax authority. Again, most jurisdictions provide an online filing system for convenience.
Payment and Reconciliation: Pay any taxes owed based on the IFTA return and reconcile the reported mileage and fuel consumption with the actual records.
If you would like to learn more about the IFTA reporting process, reporting examples, and the common mistakes to avoid we recommend you to check out our course on How to START Your Trucking Business. This course covers all the essential topics for starting your trucking business such as registering and obtaining operating authority, taxes, start-up costs, writing a business plan, budgeting, financing equipment, helpful resources, templates, and much more!
In conclusion, the International Fuel Tax Agreement serves as a vital framework for harmonizing fuel tax obligations in North America, benefiting both carriers and tax authorities. Understanding its provisions and diligently fulfilling reporting requirements will help a new trucking company and existing motor carriers navigate the complex landscape of interstate fuel taxes with ease and efficiency.
Remember, it is always advisable to consult with tax professionals or regulatory authorities for specific guidance and requirements pertaining to your individual circumstances.
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC - Copyright 2023 - does not assume responsibility for any omissions, errors, or ambiguity contained herein. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.