What Is IFTA in Trucking and Why It Matters?

In the case of truck driving, driving across states is hard because of fuel taxes. Every state has its fuel tax. Trucks going through multiple states have required separate permits and paperwork for each state. The International Fuel Tax Agreement (IFTA) makes it easier by allowing trucks that become qualified to pay their fuel taxes but in a system that covers all states.

This is important to the trucking companies because it decreases paperwork, there is less paperwork as there can be only a filing, there is less chance for doing something wrong, there is the right amount of taxes for states based on how many miles the truck is driving there.

What Is IFTA Tax? A Brief Overview

IFTA is an abbreviation for International Fuel Tax Agreement. It is a working union between a large number of U.S. states (the 48 states on the mainland, as opposed to the states of Alaska and Hawaii) and Canadian provinces that makes it easier to collect and divide fuel taxes crossing state borders.

With IFTA, a trucking company signs up the state or province in which it is based and receives one IFTA license and stickers for all trucks that qualify. Instead of sending its own tax form for each place that it drives, the company sends one combined tax form (typically every three months) to the state or province where it is registered. That place takes the money that owes, gives them back refund if it is needed, then sends the relevant amount of money back to the places where the fuel was actually used.

In short:

• The IFTA is not an additional tax – it is used to properly distribute fuel tax between the jurisdictions where it is being collected.

• IFTA is applied in cases where a truck qualified to apply goes in two or more places.

• The driver or company has to make a record of the miles it drives for the fuels purchased in each place and then calculate the tax it owes for each of them.

If a truck driver fails to abide by the rules, he or she is subject to fines, additional interest, an audit or suspension of one’s license.

Which Areas Are Covered Under IFTA?

Member Jurisdictions

IFTA is applicable to 48 states in the US (excluding Alaska and Hawaii) and 10 provinces in Canada.

There are jurisdictions or some areas with exclusion:

• U.S.: Alaska and Hawaii are not participating in IFTA.

• Canada: Some of the territories in Canada are not members of the IFTA (for example, Yukon, Nunavut, Northwest Territories).

• Other jurisdictions (such as Mexico) are not a part of IFTA, if you drive in a place which is not part of IFTA, you may need special fuel permits or local tax paperwork.

What Taxes Are Covered & Not Covered

• Covered: Fuel taxes (diesel, gasoline etc.) of vehicles based on the IFTA rules.

• Not Covered: Fees such as road usage, weight mile taxes, tolls, and registration but local taxes or other local fees. These have to be paid up separately.

So while you may be following IFTA, you may also be responsible for additional fees in certain states based on the vehicle type and weight or as it omits the road.

The History of the IFTA

To understand how IFTA came to be, it would be beneficial to see how fuel tax compliance used to function and how states reacted.

Pre-IFTA Era

Prior to IFTA, trucking companies that traveled from state to state had to obtain individual fuel tax permits in each state where they traveled. They were required to fill in separate fuel tax reports, keep several sets of records, and coordinate payments to a plethora of jurisdictions. This was laborious, poor practice and error-prone.

Often states had “ports of entry” or border depots where carriers would come to get permits, or fuel tax credentials. Eventually, this system became expensive, time-consuming, and an interstate commerce bottleneck.

Birth and Evolution of IFTA

• In the 1980s, some states started bilateral or multilateral agreements to ease the bureaucratic efforts in collecting fuel taxes and sharing the revenues.

• By 1983, then-states like Arizona, Iowa, and Washington were among those who attempted to create a much more unified system.

• The first contracted IFTA Articles of Agreement were accepted later, and gradually more states and Canadian provinces came on board.

• By 1996, it was in full implementation across the U.S. states and a number of Canadian provinces.

Thus, the IFTA system was established to make fuel tax accounting easier, to minimize administrative effort and to ensure that revenues are shared equitably between jurisdictions based upon the actual use of vehicles.

Do I Need an IFTA Sticker and License?

Yes-whereas your vehicle may be a Qualified Motor Vehicle (QMV), the Class “D” exemption-no Class “A” (SQL) vehicle-and you drive in two or more IFTA areas-you must have:

• A valid IFTA license.

• Decals (stickers) for each qualified car.

• You usually get 2 decals for each vehicle, one for each side to put on.

What Vehicles Qualify (QMV Criteria)?

A motor vehicle is qualified under IFTA if either

• It has two axles and a gross vehicle weight (or registered gross weight) of more than 26,000 pounds (about 11,800 kg).

• Fossil fuels, with no exceptions, are derived from dead matter.Edit: Fossil fuels-with no further comment.

• It is a tractor and trailer combination that has a total weight of more than 26,000 pounds.

Also, purely recreational vehicles, or vehicles that are not used for business purposes are exempt.

So, if you have a route where your truck crosses state or provincial lines, odds are extremely likely that if your vehicle meets one (or more) of the above criteria, then you will need the IFTA license and decals.

Thus, yes, you need an IFTA sticker and license if your operations qualify, it’s done to legally operate interstate with the IFTA system.

What Is IFTA License and How to Apply?

Here’s a breakdown of IFTA licensing and the application process.

What the IFTA License Covers

• The IFTA fleet license is issued to a motor carrier, and not to the individual drivers.

• The license is only valid in the base jurisdiction though it is recognized across all of the IFTA member jurisdictions.

• With the license you are issued decals (stickers) which should be displayed on each qualified vehicle, usually two per vehicle.

• The license must be renewed on an annual basis.

• If you take on or harvest vehicles in the fleet, then you can ask for extra decals.

How to Apply — Step by Step

The exact process and required documents vary by state or province, but the basic steps are as follows:

Determine base jurisdiction

Generally you will have primary jurisdiction in the area where:

• your vehicles have been registered, or

• the control or accounting of your operation is maintained, or

• Some traveling takes place within the jurisdiction.

Gather required information/documents

These are examples of commonly needed items include:

• USDOT number (for U.S. carriers)

• Business name and address

• Federal Employer Identification Number (FEIN) OR equivalent tax ID

• Vehicle Details: make, model, VIN, registered weight, license plate number etc.

• some IRP / registration credentials.

Submit application

• Many locations have made it possible to apply online, such as the Texas Comptroller’s WebFile system.

• Certain locations accept forms both online and in paper form.

• Be sure to pay the application fee and/or the decal fee, if applicable.

Receive license and decals

• Once this is approved you will get an IFTA licence and some stickers through the post.

• You must place the stickers on both sides of any vehicle that is qualified, and have them on all the time during the licence year.

Maintain and renew annually

• Before the license expires (usually December 31st) you will be required to renew or submitt new application in order to continue operating.

• Some places will allow having a grace period into the next year to display new decals.

• For those of you who move or change your fleet, you must update your base jurisdiction – because you may be required new credentials.

Example: Applying in Texas (as a case example)

• Provide the required IDs such as FEIN, USDOT, company details and vehicle details.

• After you get approved the IFTA license and decals will be mailed to you.

• All IFTA fuel tax returns must be made on the same WebFile system.

• Note: Look up the rules, rates, and procedures in your area, as rules in each state/province will vary as far as which forms, deadlines, fees, etc. used.

How Does IFTA Work (Mechanics & Reporting)

To truly grasp IFTA, you need to understand how the system works operationally in a trucking business.

Tracking Miles & Fuel

Each quarter you must make an assessment and aggregation of:

• Mileage driven by each vehicle owned by qualified individuals by area. This is monitoring miles traveled in each state or province.

• Total Gallons/Liters of fuel bought (purchased gallons or liters) in each jurisdiction. Maintain copies of fuel receipts, invoices and records showing type of fuel, the quantity, and the date, and the jurisdiction in which fuel was delivered

Using those numbers, work out your average fuel economy (miles per gallon – or m.t.From those figures, work out your average fuel economy (miles per gallon – mliceq. This helps you to determine fuel usage per jurisdiction for miles driven.

Apportioning Tax

Here’s how the tax is apportioned:

Compute total tax on fuel used

Multiply that amount of gallons that you have bought by the tax rate for the region that you bought fuel in. That would give you the total fuel tax which you already paid.

Calculate tax liability per jurisdiction

• First, multiply the number of miles driven in each area of jurisdiction by the average number of gallons used per mile. Then you get a number of gallons used in that jurisdiction.

• Next, the number of gallons is multiplied by the fuel rate for that jurisdiction. That is the tax on the miles you have driven there.

Net tax due or credit

• Add all of the taxes that you owe in all regions.

• Take away the taxes that you already paid at the gas station (in different places).

• The last number overwhelms you with what is necessary to know if you will still need to pay more in tax or you will get a refund or credit.

Report & pay

• Send your quarterly IFTA tax return to your main IFTA tax state.

• Pay any taxes you owe.

• If you are refunded, the main state from which you moved will send the refund to you.

• States act in the background to move money or balance registers.

Reporting Deadlines & Frequency

• IFTA fuel tax returns are usually made every three months.

• Deadlines generally fall on:

• April 30 (Jan–Mar)

• July 31 (Apr–Jun)

• October 31 (Jul–Sep)

• January 31 (Oct–Dec)

• If the deadline is a weekend or holiday, the return should be made the following business day.

• In addition to filing a zero IFTA return after each quarter with no interstate activity, there are many circumstances which could trigger a return with positive IFTA mileage.

Recordkeeping & Audit Requirements

• Keep all receipts for fuel and invoices, work orders and logbooks for four to six years depending on local regulations.

• Maintain an up to date set of records that may be audited by your local authority or its representative.

• At the time of audit provide documents showing the kilometers driven, fuel consumed and receipts.

Penalties & Interest

• Late filing or late payment: If you fail to pay your taxes when you have to, you need to pay fifty dollars or 10% of the tax that is yours, whichever is larger.

• Interest: If you don’t pay your tax on time interest will accumulate on the amount that you owe.

• Inaccurate or false reporting: Wrong or false information can lead to bigger fines, the loss of credit or the revocation of your license.

• License suspension or revocation: Repeated -for instance, repeated failure to comply with paperwork or payment – may result in hitting IFTA credentials.

Key Benefits & Challenges of IFTA

Benefits

Simplified Compliance

You will have to do a single tax return and pay your tax in one main area than in multiple states.

Reduced Administrative Burden

This means less forms, less permits and less paperwork – saving time and reducing mistakes.

Fair Tax Apportionment

The places you visit collect money according to how many miles you drive there. So, you pays [taxes] where you actually drives not just where you buys gas.

Better Planning & Predictability

Because there are no hiding places for the tax costs, you will be better able to plan how much you have to pay, your routes and where to refuel.

Lower Risk of Multiple Audits

When the main jurisdiction conducts audits for all participating areas, there is a less likelihood of double audits.

Challenges & Risks

Recordkeeping & Accuracy Requirements

It is important to keep proper records of fuel purchases, number of miles driven in each state, receipts, and logbooks. And, you can receive penalties if you make mistakes, or fail to include records.

Complex Calculations

This is aiation of a task for taxonomists: it is difficult to equalize taxes between different states – especially when purchasing fuel at various gas stations in different states.

Software & Technology Needs

Many carriers are making use of software, GPS/ELD devices, telematics, or fuel management services to make IFTA reporting easier.

Penalties for Noncompliance

Penalties, interest, audits, license suspension or revocation can be assessed depending on your ability to pay on time and accurately with no errors or omissions.

Jurisdictional Differences

Although IFTA is a standard of fuel tax, the states may have additional rules, charges, or exemptions. You must still know those.

Tips for Managing IFTA Efficiently

• Use electronic log devices, global positioning systems or telematics that automatically track the number of miles you drive in each jurisdiction. This reduces the manual input and errors.

• Establish acceptable fuel and mileage apps, including digital or mobile apps. Drivers should save the information about where they stop to get fuel, how much fuel they purchase and from their fuel receipt.

• Also, observing your logs on a regular basis can identify any deviation at an early stage.

• Make a digital copy of all receipts and logs and keep them for auditing purposes.

• Fuel tax rates are constantly changing for each jurisdiction on a quarterly to annual basis. IFTA publishes rate tables.

• Make sure that you don’t file at the eleventh hour.

• If you have a large number of vehicles, consider the family of an appropriate compliance officer or employ a third party IFTA reporting service.

• In the case of adding or removing a vehicle, update your IFTA account and number of decals for this vehicle quickly.

• If an audit is called, cooperate and provide all of the required documents to prevent fines.

Conclusion

At first glance, the International Fuel Tax Agreement (IFTA) may seem like a complicated subject, but it is very important. It makes trucking fair and efficient. IFTA offers a single method to file fuel taxes for truckers and ensures that the correct amount of taxes is paid to all states or provinces where fuel is purchased.

Carriers and Owner-Operators should be aware of and act in accordance with IFTA. The Mc Carthy Trucking Company restricts a practice and it is a must-business law for doing a decent trucking business. Record running miles, fuel receipts and quarterly reports. This will save time, money and avoid penalties.

If IFTA is too difficult to handle on your own, it would be useful to have experts to assist you. Dexter Dispatch Services keeps truckers compliant, finding high paying loads to do back office work. Work with a good dispatch partner and you can drive, leaving the specifics to the pros.

In trucking, compliance with the laws and organization is a great way to prosper in this field. Keep up-to-date, remain in compliance and continue to profitably drive every mile of your vehicle.

Frequently Asked Questions