Akin: A fleet operator's guide to the International Fuel Tax Agreement
What is the International Fuel Tax Agreement?
IFTA is an agreement between the U.S. and Canadian provinces that enables a simplified way for truck drivers to pay fuel taxes. Instead of obtaining fuel tax licenses for each state or province they operate in, carriers can register in a single jurisdiction (usually their home state or province) and report all fuel taxes under one license. The system is designed to distribute taxes to the state where fuel is consumed, rather than where it is purchased.
Under IFTA, fleet operators are required to file a single quarterly fuel tax report with their home state, which then distributes the taxes owed to the appropriate states or provinces. This eliminates the need for separate tax filings in each state, saving time and reducing administrative burdens for fleet operators.
Who must comply with IFTA?
IFTA applies to motor carriers operating “qualified motor vehicles” across state or provincial lines. A qualified motor vehicle is generally defined as one that:
- Has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 lb. (11,797 kilograms)
- Has three or more axles, regardless of weight
- Is used in combination, where the combined weight exceeds 26,000 lb. (11,797 kilograms)
If you are an OTR trucking company, for example, you are required to file for IFTA. Alternatively, light-duty trucks and passenger vehicle fleets are not subject to IFTA requirements.
How do I register for IFTA?
Fleet operators need to register for IFTA in their home state, which is typically the location where the vehicles are registered and where the operational control and records are maintained. To register, carriers must complete an IFTA application form, provide proof of vehicle registration, and pay a fee.
Upon approval, the fleet operator receives an IFTA license and two decals for each qualified vehicle. The license must be kept in the vehicle at all times, and the decals must be displayed on the exterior sides of the vehicle’s cab.
See also: The history of fueling infrastructure
What are IFTA reporting requirements?
IFTA requires carriers to file quarterly fuel tax reports. These reports detail the amount of fuel purchased and consumed in each state, along with the number of miles traveled. The home state calculates the net tax or refund due and attributes the fuel consumption to the appropriate states.
The quarterly reporting deadlines are as follows:
- Q1: January - March (due April 30)
- Q2: April - June (due July 31)
- Q3: July - September (due Oct. 31)
- Q4: October - December (due Jan. 31)
Failure to file the quarterly report on time can result in penalties, interest charges, and potential revocation of the IFTA license.
What are the record-keeping requirements?
Accurate record-keeping is essential for IFTA compliance. Fleet operators must maintain detailed records of fuel purchases, fuel receipts, and trip mileage for all vehicles operating under IFTA. These records must be kept for a minimum of four years and must be readily available in case of an audit by the base jurisdiction.
- Fuel receipts: Fuel receipts must include the date of purchase, the name and address of the seller, the number of gallons or liters purchased, the type of fuel, the price per gallon or liter, the vehicle receiving the fuel, and the name of the purchaser.
- Mileage records: Mileage records, often referred to as trip reports, must detail the routes traveled, starting and ending locations, total miles driven in each jurisdiction, and the vehicle's odometer readings at the start and end of each trip. Modern electronic logging devices and fleet management software can automate much of this process, reducing the risk of errors.
Common challenges and solutions
- Complexity in record-keeping: Maintaining accurate mileage and fuel purchase records for all jurisdictions can be challenging. Using fleet management software and electronic logging devices can automate record-keeping and ensure accuracy.
- Navigating audits: IFTA audits are conducted to verify the accuracy of reported mileage and fuel purchases. Being well-prepared with organized records and using digital tools can help fleet operators navigate audits more smoothly.
- Penalty risks: Late or inaccurate reporting can lead to penalties and interest charges. Setting up reminders for quarterly deadlines and implementing checks for data accuracy can help avoid these issues.
As carriers grow, it becomes more and more important to have a streamlined process and person in charge of preparing and filing IFTA reports.
There are also many solutions that can automate IFTA tax reporting and filing for carriers. Some of these solutions are point solutions, where they only solve a specific problem, i.e., the filing itself, or the data collection itself.
Some modern fuel card companies can automatically export IFTA reports on demand directly from their customer online dashboard. Alternatively, there are some integrated solutions out there that will automate the end-to-end process for carriers (from when they purchase fuel to the creation of IFTA reports and filing of the reports to the proper authorities). These products and services are more commonly used by larger carriers.
