International Fuel Tax Agreement (IFTA) Explained
posted in Newsletter by Brian Gray
How To Determine The Best Fuel Price
States and Canadian Provinces get a great deal of their road construction and repair budgets through charging a fuel use tax for every gallon of fuel purchased. Generally, the price of fuel you see posted at the pump includes the State and Federal Tax. So, as you travel your States roads, putting wear and tear upon the system, you pay for your wear and tear with each gallon of fuel you buy in the state.
Should you purchase fuel for your personal car in one state and then immediately travel through and use that fuel in another state, you have effectively paid tax in one state but put wear and tear on another state’s road system. The states have yet to devise a method voters would tolerate where they could be allowed to collect this lost tax from the general motoring public.
The trucking industry is not so lucky. The states and most Canadian Provinces banded together to form the International Fuel Tax Agreement (IFTA). IFTA is a tax collection agreement whose purpose is the uniform administration of motor fuels use taxation laws for qualified trucks operated in more than one state or Province.
IFTA has devised an equitable but laborious system to collect and distribute fuel use taxes to the jurisdiction where the fuel was used. It’s done by calculating and reporting how many gallons of fuel a fleet uses in each state/province that it travels during a quarter and multiplying those gallons by those states’ fuel use tax rates. When fleets purchase fuel in a State/Province, thereby paying fuel use tax at the pump, that amount of tax paid is used to offset the tax owed.
Even more elaborate than the tax computation is the record keeping that must be collected and maintained to prove you arrived at the correct totals. There must be detailed records for every truck. Failure in your record keeping system can mean large dollar audit assessments that include penalties and interest applied to 3 years of operations. As states grapple with funding, audits are a proven source of revenue and the numbers are expected to increase.
In a nutshell, you are either going to pay each state’s fuel use tax at the pump or through IFTA. To truly evaluate which station’s fuel price is cheapest, always subtract the state’s per gallon tax rate and then compare the prices. A posted price of $3.75 a gallon in Wyoming looks great compared to a price of $3.85 in Nebraska but after subtracting the State Tax that’s handled through IFTA, you find Wyoming’s price is $3.61 (.14 cent tax rate) compared to Nebraska’s $3.59 (.26 cent tax).
Glostone Trucking Solutions is a fuel use tax reporting and audit expert. If you need help with tax rates, what records to keep, calculating IFTA Tax reports, Mileage Tax reports or with preparing for an audit, give us a call! We’re here to help!
503-607-1088
