What is IFTA?
International Fuel Tax Association(IFTA) is an agreement between the 48 contiguous states of North America & 10 provinces of Canada to simplify motor-fuel tax reporting by interstate motor carriers. The idea behind this association was to reform and consolidate the then-existing ambiguous fuel tax reporting for carriers and jurisdictions.
Here we have discussed a Comprehensive guide to IFTA reporting for your fleets. So go through them and stay with us till the end.
Before the establishment of IFTA, every state had its fuel tax reporting and licensing system. Every carrier needed tax licenses for each jurisdiction in which it operated. The fleet management companies had to report to almost 58 jurisdictions. The reporting system to each jurisdiction was cumbersome to the fleet management industry and jurisdictions.
The Jurisdictions audited any carrier with a license within that jurisdiction. The fleet management industry was subject to having the same data audited by multiple jurisdictions. Additionally, fleet management companies had to apply for tax permits for trucks in their fleet to the authority in each state. This activity was tedious and expensive for all concerned.
When was IFTA established?
To address the issues of inconsistent tax structures, filing periods, rules, and reporting requirements, it was necessary to have a centralized authority. These issues made the representatives of the trucking industry and the government brainstorm to create a centralized system that would address all issues and document them. Subsequently, the International Fuel Tax Association(IFTA) was formed in September 1996, when Congress enacted legislation 49 USC 31701 – 31707.
This legislation gave power to each state to maintain, or enforce a law or regulation, only if it conforms with IFTA. It also detailed how the proportional sharing of fuel taxes would work among member states.
Member States & Provinces of IFTA
Arkansas, Alabama, Arizona, Connecticut, California, Colorado, Florida, Delaware, Georgia, Indiana, Iowa, Illinois, Idaho, Kentucky, Kansas, Louisiana, Maryland, Massachusetts, Maine, Missouri, Michigan, Montana, Minnesota, Mississippi, Nevada, Nebraska, New York, Nevada, New Jersey, Nebraska, North Dakota, New Mexico, North Carolina, Oregon, Ohio, Oklahoma, Rhode Island, Pennsylvania, South Dakota, South Carolina, Texas, Tennessee, Utah, Virginia, Vermont, Wisconsin, Wyoming, West Virginia, Washington.
New Brunswick, British Columbia, Manitoba, Nova Scotia, Newfoundland, Prince Edward Island, Ontario, Saskatchewan, and Quebec.
How does IFTA work?
The idea of creating IFTA was consolidation and ease of doing business. The benefits were meant not only for trucking businesses but also beneficial for states and their jurisdictions for the use of their roads by commercial vehicles. The base state plays an important role, as the responsibility of collecting taxes on fuel use, processing fuel tax returns, and apportioning the funds to all other states rests with them.
Compliance with the following requirements is needed to be a member of IFTA
- Base State Registration
Interstate motor carriers must specify a base state of operation for reporting purposes. This specification eliminates reporting vehicles and paying fuel taxes to multiple states for every vehicle operated by the carrier. The advantage of having a base state registration is that you can carry one license, one set of fuel credentials, and file tax returns with a base state. The base jurisdiction distributes jurisdictional taxes payable by the carriers.
- License & Decal Applications
To acquire an IFTA license, you must fill out the application form used in your base state. IFTA is a base-state agreement. If you have an IFTA license issued in one state, it holds good in every state in the United States (except Alaska and Hawaii). As per the requirements, when applying for a license, you will be required to furnish the following information:
- Proof of residence: You must have proof of a valid physical address (lease or mortgage statement) in your state of residence. You must also prove that you filed income taxes with the Department of Revenue for the previous three years.
- License plate – You must have an International Registration Plan license plate unless you have a farm or transporter plate on your vehicle.
- DOT number – If you are driving for someone else, a copy of your DOT authority lease and your Registrant DOT Number is required.
- Owner/Officer information –
- You will have to provide the names of the owners or officers with their Social Security Numbers.
The licenses are valid from January to December each year. Once your application is processed, the IFTA authority will issue decals for the current year.
An IFTA Decal is a sticker provided by your base jurisdiction when receiving your license. You have to place the decal stickers on each side of the rear side of the vehicle in the lower corner. You will receive two sets of decals per vehicle operated. Record keeping of decals is a good practice. For example:- details like IFTA License year, number of decals used in the fleet, the range of sequence numbers, etc. You should ensure that this information is kept in the file for four years from the date of the license period filed.
IFTA Reporting Requirements
Who is required to report to IFTA?
According to IFTA regulations, for your motor vehicle to be qualified for reporting, it must travel in at least two IFTA jurisdictions. The qualified motor vehicles used to transport people or goods may require IFTA registration in case of the following:
- A truck with three or more axles.
- A truck with two axles with a gross weight of over 11,797 kgs or 26,000 lbs.
- Vehicles having a combined or registered gross weight of more than 26,000 lbs.
As an IFTA licensee, you must submit your fuel tax reports every quarter, every year. File online reports to make your IFTA quarterly tax filing easy. In case of your inability to file reports online, you can use the format of the tax report and mail it to the Fuel tax reporting unit with any required payment.
|Report Period||Covered Period||Due Date|
|1st Quarter||1st January to 31st March||April 30th|
|2nd Quarter||1st April to 30th June||July 31st|
|3rd Quarter||1st July to 30th September||October 31st|
|4th Quarter||1st October to 31st December||January 31st|
Note that if you do not operate during a particular quarter, you will still be required to submit an IFTA report with zero miles. IFTA reporting is critical, and you need to ensure its quarterly compliance. If you fail or get delayed in the report submission, there will be a fine of $50 or 10 percent of the net tax liability, whichever is greater. The late filing penalty will be applicable even if the net tax liability is zero or a credit.
Interest assessment happens on all erring taxes due for each jurisdiction. Calculation of interest is done from the due date of the tax for every month or a fraction of a month until paid. The online filing system will determine the amount of interest owed on the return. If the due date falls on a weekend or state holiday, the due date is carried forward to the next business day. You will receive a confirmation upon filing your return. You have to ensure to keep the filing confirmation for your records.
How is the calculation of IFTA fuel tax reports done?
IFTA Mile Calculations
Once members with IFTA, the onus falls on the fleet managers to ensure that you file all the requisite reports on time. You must ensure that the fleet manager and drivers work closely and record the quantity of fuel consumed in each jurisdiction. There are different methods of calculating mileage:
It is the most traditional way of recording or tracking fuel. You will have to track the miles traveled in each jurisdiction. You will need to record your odometer reading when you cross a state/province border or refuel. For every entry and exit for a state or province, subtract the ending odometer reading from the entry reading. This calculation will give you the miles traveled for that state. It will result in you having a mileage number for each time your truck enters a new jurisdiction.
An illustrated example of the calculation of total mileage per state/province. For example, assume your truck has entered South Carolina 3 times in the last quarter:
|Starting Odometer Reading||Ending Odometer Reading||State|
Your total mileage for each entry will result in 4480 miles for South Carolina for this reporting quarter. However, this method is prone to errors or mistakes while reading the odometer and is time-consuming.
A trip Mileage Calculator helps you to estimate the miles traveled for every trip. Various tools are accessible to complete this work.
First, you will be required to monitor every individual trip your truck went on, including the starting and ending odometer reading of every trip.
- As the next step, enter the start location and destination. Few calculators require routing details which help to improve the accuracy of mileage.
- The mileage calculator should give you the route and miles traveled in each state. Record the mileage for each state/province separately on a spreadsheet, as you will need to add all miles traveled for a particular state across all your trips.
Fuel purchases information
Next required are the gallons of fuel purchased by you in each jurisdiction. The drivers must retain the original receipts or invoices as proof of fuel tax payment. The following specifics must be on the receipt:
- The driver’s name.
- Fuel purchase date.
- The Fuel Vendor name and location.
- Type of fuel purchased.
- Vehicle plate number.
- Gallons of fuel purchase.
- Price per gallon.
IFTA License Renewal Requirements
IFTA licenses must be renewed latest by 31st December every year. You must ensure submission of the following as renewal requirements with an IFTA filing fee of $10.00
- IFTA License Renewal Application.
- Record-Keeping Agreement: IFTA requires all operational records and mileage records supporting the application archived for four years, following the date the IFTA tax return for such operations was due or filed. You must be able to reproduce any electronic data by unit or trip as required during an audit.
- The IFTA agreements require you to include & provide the following information on an IVMR/Driver trip record.
- Company name.
- Fleet number.
- OEN – Operator Equipment Number.
- The trip, start and end dates.
- Trip origin and destination (Including City & State)
- Routes / Highway numbers traveled.
- Odometer, start and end readings for the trip.
- Intermediate trip stops.
- Trip total miles.
- Miles traveled in each jurisdiction.
- Driver name and ID.
- IFTA decal serial number.
- Power of Attorney: If a licensee uses the services of someone else for motor fuel use tax reporting, a Power of Attorney must be filed annually at the time of renewal. By filing a Power of Attorney, the licensee does not get relieved from the legal obligations associated with the license. The licensee will be held responsible for all acts and omissions of the reporting service and payment of taxes.
IFTA Record-Keeping Requirements
IFTA licensees must maintain records to corroborate information reported on quarterly tax returns. You need to keep the following reports & provide the same whenever required.
- Distance Records (P540)
A licensee is required to, maintain records of all the operations of qualified motor vehicles. Your records maintained must support the information reported on the quarterly tax return. At a minimum, your system should include mileage data on each vehicle per trip. Listed below should be part of the supporting information:
- Records of beginning and ending dates of the trip.
- Trip point of origin and destination.
- The route of travel.
- Engine control module (ECM), hub odometer, starting and stopping odometer readings, and any other trip-related component.
- The total trip distance.
- The length of each jurisdiction’s journey.
- The vehicle unit number or vehicle identification number (VIN)
Records produced by a vehicle tracking system, including system based on the global positioning system (GPS) should include the following:
- The initial GPS or other location information for the vehicle to which the records apply.
- The time and date that each GPS or other equipment read each time to confirm the overall distance traveled in each jurisdiction.
- GPS location or other system reading.
- The beginning and ending readings from the engine control module (ECM), hub odometer, odometer, or any other instrument within the period are covered by the records.
- Computed distance between each GPS or other system reading.
- The vehicle’s travel route.
- The measure of distance covered by the vehicle.
- The vehicle identification number.
- Fuel Records (P550)
As a licensee, you must maintain records of all fuel purchased or used during the business. You must have separate totals for each fuel type. Different fuel types include but are not limited to diesel, biodiesel, gasoline, propane, liquid natural gas, compressed natural gas, ethanol, and methanol. The following must be included in the fuel records:
- The date of the fuel purchase.
- Fuel Vendor’s name and address.
- Fuel purchase quantity.
- Type of fuel purchased.
- Fuel price per gallon.
- The fuelled vehicle identification.
- Fuel purchaser name.
Fuel records include receipt, invoice, credit card receipt, and an electronic or digital record of the original receipt or invoice. You will need to maintain original receipts for verification. Receipts with alterations and erasures will be, rejected by the division for tax-paid credits.
- Bulk Fuel Storage (P550)
As a licensee who maintains a bulk fuel storage facility, you may get credit for tax-paid fuel when removed from that storage facility and placed into a qualified motor vehicle if the following records are maintained:
- Receipt for all deliveries.
- Quarterly inventory reconciliation for each tank.
- The capacity of each tank.
- Logs of bulk withdrawals from each location’s individual bulk tanks.
Additionally, you should retain the following records for bulk storage withdrawals:
- Location of the bulk storage of withdrawal.
- Date of withdrawal.
- Quantity of fuel withdrawn.
- Type of fuel withdrawn.
- The fuelled vehicle identification.
IFTA Compliance Reviews
Compliance will happen after the first year of the agreement implementation, at the expense of the member jurisdictions. As an assurance of compliance with the provisions of the agreements, member jurisdictions will permit periodic program of compliance reviews. The respective jurisdictions participate in their share of program compliance reviews each year. There will be a maximum of two compliance reviews per member jurisdiction each year.
IFTA Common Reporting Mistakes
Late Filing of IFTA Report or Not Filing at All
These are the most common forms of reporting mistakes you can come across. In the frantic pace and tight schedules, you will lose sight of filing the report. This oversight can cost you dearly. The penalty amount is $50 or 10% of the net tax due, whichever is greater. It also puts you at risk for an audit with the potential for more scrutiny and expenses.
Estimating Fuel Calculations
Many times, to cut down time and effort, you may indulge in shortcuts for fuel calculations. However, estimating fuel consumed by your fleet when the quarterly IFTA due dates are approaching is a decision that can prove costly. The regulations stipulate accurate readings be submitted.
For refunds or tax credits, receipts showing the gallons of fuel purchased have to be submitted. Any discrepancies in the fuel calculation could result in your fleet audit.
Non-Documentation of Odometer or GPS Issues
The Odometer and GPS play a very crucial role in IFTA reporting. You should note any malfunctions experienced in the Odometer readings or GPS during the reporting period and escalate them. A poorly calibrated gauge or bad tires can impact your odometer reading and give inaccurate mileage readings. These issues can directly impact your reported numbers and become a potential audit issue.
Not Logging Every Mile
A common mistake made by most operators is not logging every mile traveled. It may seem irrelevant for you to report the time taken by drivers to unload during a trip or for personal errands. However, remember these timings still need to be specified. Any gap between mileage in driver trip logs from one day to the next immediately raises questions.
Suspicious Miles Per Gallon
It is generally believed and expected that your miles per gallon will remain the same from one quarter to another. The reportings have to be accurate and transparent. The reported miles per gallon are estimated to fall between 5 to 10 Miles per gallon (MPG) for trucks but remain steady otherwise for each reporting period. There cannot be variances in the figures. Always stay alert and note any reason why it might have happened and be sure to explain the difference. Before any report submission, you must check your numbers for any data entry errors or incorrect records.
Using Non-Compliant Software
Be cautious while procuring any software. Ensure to ask the right questions and that the software uses updated tax tables and approved calculation methods. Ensure that your Electronic Logging Device (ELD) is FMCSA compliant.
Importance of Fleet Management Software for IFTA Calculations
Using manual trip sheets and fuel logs is becoming redundant. Advanced IFTA reporting software that provides multiple reports is available aplenty. An Electronic Logging Device (ELD) is hardware that automatically records the driving time of commercial motor vehicles.
The ELD is connected to the Onboard Diagnostic Port (OBD). It captures data on the engine, speed, miles driven, GPS location, etc. The Federal Motor Carrier Safety Administration (FMSCA) requires commercial drivers using ELD to prepare hours of service (HOS) & records of duty status (RODS)
We have curated a list of the 20 best ELD devices in 2022. So you can go through them and find out the best possible match for you.
Benefits of implementing software for IFTA reporting
- Automated IFTA reporting will leave no room for error. You no longer have to fill up tedious and time-consuming multiple forms.
- The software will collect all data like trip sheets, mileage tax report data, and mileage directly from the vehicle.
- You can eliminate data entry and utilize the time for more productive tasks.
- Automated reporting will eliminate human errors and reduction of heavy fines.
- You can track mileage automatically by jurisdiction and vehicle with precise GPS and Odometer data.
- You can associate fuel purchase data with mileage and view tax paid by jurisdiction.
- Scheduled monthly or quarterly reports to selected recipients.
- The reporting and viewing of historical reports or data anytime can be simplified.
Some IFTA-related FAQs
When does the receipt of new decals happen?
On renewal of your IFTA license annually, the fleet will be issued, with new decals. In case of loss or damage to the decals, you can place a request to your IFTA jurisdiction for new ones. Decal request processing takes place within three days of receipt of the request and is sent by mail the next business day.
Which vehicles are exempt from IFTA?
Recreational vehicles like motor homes, pickup trucks with a camper attached, and bus meant only for personal use and not for any business purpose.
Which miles are non-taxable in IFTA?
Fuel trip permit miles are allowed in some jurisdictions. If you have a fuel permit, any miles driven are non-taxable.
What is the difference between Taxable gallons & Taxed Gallons?
Taxable gallons are calculated, by dividing the total taxable miles by the miles per gallon, while traveling through each jurisdiction. Tax-paid gallons are all fuel purchased at retail stations and placed into any propulsion tank of the capable vehicles. The taxes for such purchases has already been paid, to the jurisdiction of fuel purchase.
Why is it important to report all miles driven to IFTA?
Unless you file the miles driven on the IFTA quarterly tax return, the states where you drove miles without purchasing fuel will not get any taxes.
IFTA reporting is an organized process of motor fuel tax reporting. It provides a platform for the fleet management business that enables filing a consolidated fuel tax return for each quarter within their base jurisdiction. IFTA has revolutionized the traditional and cumbersome old practices of fuel tax reporting. The introduction and acceptance of technology solutions by the fleet management industry have made the reporting process easier. Though the reports are very demanding, the industry has welcomed these practices and will go a long way in building a healthy relationship between IFTA and its stakeholders.