All of us are familiar with the word ‘Tax’ where small and large industrial sectors, payout various taxes to keep their businesses on the right track. When talking about the trucking industry sector, it has to deal with the IFTA fuel tax. Earlier, every state had its regulations and mandates regarding these fuel tax report requirements; however, today, most of them have become members of the IFTA. Before we learn about this fuel tax in-depth, let us first understand what IFTA is.
What is IFTA?
An acronym for the International Fuel Tax Agreement (IFTA) pertains to the cooperative agreement made among 48 states in the U.S. and 10 Canadian provinces that streamlines the fuel tax reporting process for interstate motor carriers. The purpose behind creating this agreement is to establish and maintain the concept of a single fuel tax license for all of your qualified motor vehicles. It empowers them to travel in all IFTA jurisdictions, compelling them to file only one tax return each quarter with their base jurisdiction to report fuel usage and mileage for all IFTA member states and provinces.
Before the fuel tax agreement came into existence, the truckers entering every state had to obtain fuel permits, which made the process incompetent, time-consuming, and extravagant. Additionally, it also meant fuel burned en route to permit purchasing centers and the applicable fees. Apart from all this, the fleet also had to comply with rules, inconsistent filing periods, definitions, and the need for reporting involved hours of clerical work.
As a result, with the influx of IFTA, this agreement has built uniformity and efficiency in fuel tax payments among member states, saving around millions of dollars in trucking businesses periodically in administrative costs.
List of the states and provinces that are members of the IFTA agreement:
Canada
Alberta
British Columbia
Manitoba
New Brunswick
Newfoundland
Nova Scotia
Ontario
Prince Edward Island
Quebec
Saskatchewan
The United States of America
All states except for Alaska, Hawaii, and the District of Columbia Now, let’s understand how this IFTA fuel tax agreement works and who needs to carry one while operating across two or more member jurisdictions.
How does the IFTA Fuel Tax Agreement work?
For most of the trucking businesses, this agreement has proved to be a boon. However, apart from all these benefits, the IFTA agreement makes sure that jurisdictions appropriately compensate for the use of their roads by heavy commercial vehicles.
Under this act, carriers only need to report inter-jurisdictional fuel use to their base state, which will also be responsible for implementing compliance through scheduled IFTA audits. Thus, the state will in turn, collect the taxes on net fuel use, process fuel tax returns, and later distribute the funds to all the other nations.
Who requires having an IFTA license?
In trucking businesses, carriers based in a member state and operating across two or more member jurisdictions need an IFTA license, declaring the type of vehicles used to transport goods. The reason behind this, an IFTA decal allows cruising to any jurisdiction by a Qualified Motor Vehicle, which is used, designed, or maintained for the transportation of people or goods. Besides, qualified motor vehicles must also fit the below descriptions:
- Any vehicle with two axles and a gross vehicle density of over 11,797 kilograms or 26,000 pounds
2. A carrier of any weight but with three or more axles
3. Transportation that exceeds 11,797 kilograms or 26,000 pounds
Over and above, holding an IFTA licensee states that the fleet agrees to maintain its records under the recordkeeping requirements. Now, the next step is to figure out how much IFTA is going to cost your fleet.
Filing quarterly IFTA Report
The primary objective of the IFTA licensee is to file a quarterly return with their base state. It should be conscientious of filing a quarterly tax return no later than the last day of the month following the close of the four quarters:
- 1st Quarter due by April 30
2. 2nd Quarter due by July 31
3. 3rd Quarter due by October 31
4. 4th Quarter due by January 31
Here, IFTA fuel tax proves beneficial for the trucking companies, as it allows the fleet to file a single, consolidated return each quarter with their base jurisdiction, or the state where the business is established. Rather than filing fuel tax returns with each state in which the carrier company operates. After collecting the fuel tax return each quarter, it distributes the taxes to the appropriate IFTA member states based on the number of miles the fleet has traveled in each state. Moreover, the IFTA reporting documents must be accurate and timely done, because if there are any errors found while reporting, it may result in fines, penalties, external audits, and potentially damaging consequences.
Using software for IFTA reporting
Earlier to file quarterly IFTA taxes, the drivers and fleet managers manually had to track their vehicle miles and fuel purchased. It was essential for them to maintain and keep an account of the purchase receipts right from fuel to a list of miles driven in each jurisdiction. With the help of the Owner-Operator Independent Drivers Association (OOIDA), drivers can keep track of their fuel purchases, miles are driven, authorities, and routes traveled by using tax reporting worksheets.
Besides, being in a digital world, drivers and fleet managers can also operate and turn to cloud-based reporting tools and fleet management software with IFTA reporting features. The software consisting of various features allows the user to automatically monitor and sort their vehicle’s fuel purchases, utilization, and costs for each jurisdiction.
We understand the tediousness of preparing a fuel tax report manually, but once we get through the complete understanding of the IFTA fuel tax agreement and how it works becomes more comfortable to tackle. This agreement eliminates the unkempt fuel tax reporting practices of traditional filing and simplifies the reporting of fuel used by carriers that operate in multiple states. Therefore, these IFTA fuel tax report requirements are specific.
This article first appeared on the VegitOne Blog at:
https://www.vegitone.com/IFTA-a-concept-to-pay-fuel-tax-for-interstate-carriers
