If you are working with the trucking industry, you have heard about IFTA sooner or later in your working. You might know what it means in general, but have no correct information about why it was formed, how is it working and what does it mean.
IFTA or International Fuel Tax Agreement simply put is an agreement between Canadian provinces and 48 American states that makes things easier when it comes to paying fuel taxes for the transporting companies. To put it even more bluntly, it was created for truckers who are crossing state lines very often and the reason is to make accounting and paying of the fuel taxes much easier with less paperwork.
There are 58 members or 48 American states plus 10 Canadian provinces. The purpose is that interstate carrier from the member states can issue one fuel use license for all the member states, and one administering base jurisdiction for every one of the license owners.
History of IFTA
IFTA was created back in 1983 to serve as a wider application for the RFTA or Regional Fuel Tax Agreement. Before it was created, truckers that were crossing state lines were required to obtain a fuel permit in each state that they operated in. The different states had different requirements for these permits which made the process extremely complicated and time-consuming. That is how the necessity for one agreement was born. Originally, only Arizona, Washington, and Iowa were a part of IFTA.
On the other side, the RFTA countries were New Hampshire, Vermont, and Maine and they had the same idea of eliminating multiple fuel taxes in the different states. This was a problem because it caused things like not regular record keeping, inconsistency with filling, etc. The way it was put too much pressure on carriers that had to do a lot of work to simply operate their business. The wider application or IFTA was created to both lessen the carriers’ obligations and concerns, and keep the state control besides that.
By 1990 the 3 member states adopted a new model for IFTA and the membership grew first to 6 and then to 16 members. Six years later in 1996, Congress enacted the legislation for IFTA inviting all states to become members with the exception of Alaska and Hawaii. The purpose was to have consistent and uniform jurisdictions across all states that are members of IFTA in order to make auditing, reporting, and payment easier for international carriers’ business. By that year, all 48 members of American states and the 10 Canadian provinces were already a part of the agreement.
How Does IFTA Work?
To obtain an IFTA license, the truck has to be registered for it in the state it is in. Then, when the truck crosses state lines. Now, if a driver puts fuel in his truck in one state, and he doesn’t do it again in the next one or two states depending on the fuel mileage of the truck, the fuel tax will be paid only in the first country. This will go on until he stops in another state to fuel up, and the same rules will apply. Some of the states have higher fuel taxes and some of them have lower.
That is why drivers might attempt to “even out” the taxes so they won’t have to pay more. This means that if a driver buys fuel in a state that has lower taxes, and then goes into another state that has higher taxes, it might happen that he has to pay the difference to IFTA. If it’s the other way around, the driver can cover the cost when the goes into a higher tax state.
This is why it is of crucial importance for the mileage, fuel consumption and fuel purchase to be clearly known is each and every state. Once the driver is done with the transport, all of the information he has is sent to the state where the license was issued. After that, the home state makes sure that every state gets its fair share of fuel tax money.
How to Do IFTA Reporting?
If you are operating with a fleet, you are required to submit an IFTA report every quarter. In that report, you need to state the mileage that your trucks drove, the gallons that they fueled up, and the states that they purchased the fuel in. According to the information that you submit, IFTA will determine whether you need to pay a certain amount or you deserve a refund. This refund or payment will be issued by the home jurisdiction state where the company is registered.
The decals have an expiration on the 31st of December every year and the carriers are allowed to register again until the last day of February the following year. These reports have to be filled out for every operating qualified motor vehicle every quarter of the year. The criteria for the vehicle is:
– Has three or more than three axles
– Has two axles plus the gross weight of 26000 pounds or up
– Is used in a combination and has a combined gross weight of 26000 pounds or more
Motorhomes and vehicles used for leisure purposes are not included in these criteria. You can submit these reports either online, by mail, or directly in their offices. Some of the most common mistakes when doing IFTA reporting are doing estimations of the mileages, excluding personal mileage, failing to report any odometer or GPS malfunctions, filing the report late, etc.
These mistakes can have big consequences on your business like paying penalties, being audited, and in some cases even losing your IFTA license which can be a huge problem for your business.
Even though IFTA reporting can seem a bit complicated to you, learning about it and getting comfortable with the process can be of great help since the IFTA regulation is extremely important for any business that is an international carrier.