As a business owner, tax reporting is a regular responsibility. There are a range of different taxes you need to pay, from FICA taxes to federal and state unemployment, as well as federal and state workers’ compensation. And if your business operates commercial vehicles, recording data regarding your fuel usage and reporting taxes on that usage is also a part of your tax filing duties.
If your operation is based in one of the 58 member jurisdictions, you’ll be required to register with IFTA for your fuel tax reporting.
But what is IFTA and how does it work?
Read on to take a closer look at everything you need to know about IFTA.
What does IFTA stand for?
IFTA stands for the International Fuel Tax Agreement. It was established in 1983 by Washington, Arizona, and Iowa as a larger application of the Regional Fuel Tax Agreement (RTFA).
What is IFTA reporting?
To put it simply, IFTA is an agreement made between 58 districts regarding the collection and sharing of fuel taxes. This agreement was created to make it easier for companies that operate across multiple jurisdictions to report and pay their fuel taxes.
Member states work together to calculate and collect fuel taxes from commercial vehicles operating in multiple jurisdictions. That way, each IFTA license holder only needs to file one single tax report with their home jurisdiction which will cover your operations in all other member jurisdictions.
Before IFTA, commercial vehicles needed to hold individual permits in each state, they worked in, resulting in an administrative nightmare. This process was time-consuming, inconvenient, and costly for many businesses. So the jurisdictions worked together to simplify the process to be more efficient for everyone involved. The agreement saves commercial trucking businesses millions of dollars on an annual basis.
How does IFTA work?
Once you’ve registered with IFTA, you’ll receive a license along with two decals for each one of your commercial vehicles. The IFTA stickers will need to be displayed on both sides of the vehicle cab and owners are required to renew their license regularly and pay their taxes on time.
When you purchase fuel for use in a commercial vehicle, you are required to pay taxes on it. The IFTA tax is calculated based on where the fuel is used and then the tax credit is based on where the fuel is purchased. IFTA calculates the difference between those two numbers and simplifies the reporting process.
Who needs IFTA?
You’ll need to register with IFTA if your company is based in a jurisdiction that is a member and if it operates in multiple jurisdictions.
Each one of the participating 58 states and territories has its own rates that you will need to adhere to if you operate there.
IFTA is required for vehicles that:
- are commercially used to transport people or goods
- have an attached trailer with a combined weight of over 26,000 pounds
- have three or more axles
- have two axles and a gross vehicle weight (GVW) exceeding 26,000 pounds
Who is exempt from IFTA?
Some vehicles are exempt from IFTA regardless of their size including:
- RVs, vehicles pulling a camper trailer
- Recreation vehicles
- Busses used for personal trips
- Farm vehicles (in some states)
- Government trucks (in some states)
If your vehicle is exempt from IFTA, you will not be required to record or report your fuel usage records.
How to complete IFTA fuel tax reports
Reporting is done in IFTA quarters. The deadlines to file your IFTA report are as follows:
- Quarter 1: From January - March with the report due on April 30
- Quarter 2: April - June with the report due on July 31
- Quarter 3: July - September with the report due on October 31
- Quarter 4: October - December with the report due January 31
You are required to complete IFTA filing each quarter even if you didn’t use any taxable fuel. If you fail to file a tax return, file it late, or underpay your taxes, you’ll be fined $50 or 10% of delinquent taxes, whichever amount is greater.
IFTA fuel tax calculations may seem inherently overwhelming, but can be broken down into 5 simple steps:
1. Track miles logged in each state
The first thing you’ll need is accurate logs of miles traveled in every IFTA jurisdiction in order to calculate fuel consumed. This requires extreme organization on the part of both drivers and fleet managers. Drivers must record odometer readings every time they cross into a new state or province. It may seem laborious, but its importance cannot be stressed enough.
Fortunately, there are tools to greatly simplify the process. GPS fleet tracking software included as part of an all-in-one fleet management solution can help automate mileage recording. Fleet managers can then extract miles traveled for every IFTA jurisdiction at the end of every quarter.
2. Calculate total gallons of fuel purchased
Next, you’ll need total gallons of fuel purchased in every IFTA jurisdiction. The hard part is, drivers must retain original receipts for all their fuel purchases in order to prove payment.
Every receipt must also include the following information:
- Fuel seller’s name
- Fuel seller’s location
- Fuel purchase date
- Type of fuel
- Number of gallons
- Price page per gallon
- Vehicle license plate
- Driver’s name
3. Calculate fuel consumed in each state
Once you know total mileage and gallons of fuel purchased, you are ready to calculate the amount of overall fuel mileage. For this you can use the following formula:
Total miles driven ÷ Total gallons of fuel purchased = Fuel mileage
Next, you can calculate how many gallons of fuel your fleet consumed in each IFTA state or province:
Miles driven in state Z ÷ Fuel mileage = Total fuel consumed in state Z
Use this formula to calculate for every IFTA jurisdiction your fleet operated in.
4. Calculate taxes owed in each state or province
Now that you have the total fuel consumed in each IFTA state or province, you’ll be able to calculate the fuel tax amount owed to each. This amount will be dependent upon the current rates for the quarter.
You can view these rates by fuel type and jurisdiction on the IFTA website. Do note these rates are not finalized until the end of the quarter and are subject to change.
5. Add it up
Once you know the finalized rates for the quarter, it's time to calculate total fuel taxes owed in each state or province. You can do so with the following formula:
Fuel tax required in state Z - Fuel tax paid in state Z = Fuel tax owed in state Z
Everything else you need to know about IFTA
Mexico, Alaska, Hawaii, and the Canadian territories are not part of IFTA, so the license is not valid in these locations. Even if you hold an IFTA license, you’ll need to comply with the unique requirements of each of these jurisdictions if your business operates there.
If you travel in a commercial vehicle without IFTA credentials or a fuel trip permit, you may face penalties. These penalties will vary from place to place, but can include fines and citations, which could prove costly to your business.
In order to accurately report your fuel taxes, you’ll need to have accurate records of where you consumed the fuel and where it was purchased. IFTA members are required to keep accurate records of their location, date, and time for all recorded data.