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August 12, 2019
The International Fuel Tax Agreement, known as IFTA, is an agreement between the lower 48 United States and Canadian provinces relating to the reporting of fuel use by motor carriers operating in its multiple member jurisdictions. In this post, we’ll help you gain a better understanding of IFTA and the implications it may have for your fleet.
Fuel tax reporting prior to IFTA
Anytime a commercial driver or carrier purchases fuel, they are required to pay tax on that fuel but that gets more complicated when commercial motor vehicles cross state lines and borders. Prior to IFTA, managing fuel taxes between states and jurisdictions was operated by individual states. The federal government of the United States and Canada left it up to jurisdictions to set reporting requirements and enforce payment and collection of fuel taxes, which ended up being inefficient and costly to manage.
Prior to IFTA, truck drivers were required to drive to centers each time they entered a new state to obtain trip permits for fuel taxes. The rules, processes, and deadlines for filing varied from state to state which required fleet managers to dedicate a significant amount of clerical time and resources to managing fuel tax payments. The United States and Canadian governments came together more than 20 years ago to develop an agreement that would establish uniform regulations across borders for reporting fuel tax.
What is IFTA and how does IFTA work?
IFTA was designed to simplify the payment of fuel taxes across borders and is enforced in the 48 contiguous states and all Canadian provinces. Qualified motor vehicles with either a gross vehicle weight (GVW) of at lease 26,000 pounds, three or more axles, or both, are required to comply, as well as trucks used across state lines or the United States/Canadian border for transporting commercial goods.
IFTA carriers must first be registered with the International Registration Plan (IRP) in order to be compliant with IFTA. All trucks will be provided with IFTA decals that expire annually and must be displayed at all times to avoid fines. Under IFTA, carriers are only required to report fuel usage to their base state, rather than making separate reports for each state they operate in. The base state is then responsible for the following:
- Processing the carrier's quarterly IFTA tax return.
- Collecting from or refunding the carrier a net fuel use tax representing the taxes owed to or from all the states in which the carrier operates.
- Distributing to other states, or receiving from them, the amount of fuel use tax the carrier owes.
- Auditing the carrier on behalf of all IFTA member jurisdictions.
IFTA ensures each state or Canadian province receives their justified accurate fuel tax revenue and simplifies the administrative workload for carriers.
How to complete IFTA reporting
One report estimates that IFTA saves millions of dollars annually in business administrative costs. So completing IFTA reporting properly is essential to cost reduction and compliance. To complete IFTA reporting, carriers are responsible for the following:
- Obtaining an IFTA license in your primary jurisdiction by submitting an application that includes registered business name, primary mailing address, federal business number, USDOT number
- Once your application is approved, you’ll receive decals that must be displayed and your license that must be in the vehicle at all times
- Record all miles driven, fuel purchased, and fuel tax paid in each jurisdiction
- Submit IFTA records quarterly to your base state/jurisdiction
- Once your quarterly tax return is submitted, you’ll be required to either pay taxes if they are owed or you’ll receive a refund
- Your base jurisdiction processes reports and payments from other states/provinces
- IFTA fuel tax reports must be submitted quarterly and fleet managers must allow the Department of Transportation (DOT) access to their reports at any time.
While IFTA is definitely proven to help fleet managers and drivers improve operational efficiency, there are some tools that can make it IFTA reporting and compliance simpler.
Simplify IFTA reporting and reduce costs with telematics
Reducing fuel use is one way to save on overall fuel costs, including taxes. GPS tracking can help you improve routes that take your drivers from Point A to Point B in the most fuel efficient manner. Driver behavior management software can help you coach safer driving behaviors that impact fuel efficiency, like reducing harsh acceleration, hard braking, and nonproductive idle time. View MPG and other efficiency measures for your entire fleet or an individual vehicle with accurate GPS tracking data. Pinpoint the causes of high fuel consumption, fuel slippage and fuel theft, and enforce driving habits that cut back on fuel costs.
Verizon Connect has a tool that allows you to automate IFTA reports and streamline your efforts. Fuel card management enables the drivers of every vehicle in your fleet - large or small - to directly connect location and calculations for fuel purchase information. Your team can then relay this information to IFTA Service Providers via File Transfer Protocol (FTP) transfer. This fully-automated integration can dramatically decrease the possibility of human error on reports from operators and makes fuel efficiency reporting easier and more reliable.
To find out how Verizon Connect can help your business with IFTA reporting and fuel efficiency, request a free demo today.