The International Fuel Tax Agreement (IFTA) is a reciprocity agreement among the lower 48 states and Canadian provinces that’s designed to make it simpler for motor carriers that operate outside of their home jurisdiction to report and pay fuel tax.
Vehicles registered under IFTA receive credentials that allow them to go to any IFTA jurisdiction without the need for individual trip permits. A single quarterly report filed with your base jurisdiction covers all of your travel; your base jurisdiction is responsible for processing your return and apportioning funds to each jurisdiction or requesting net refunds owed to you.
International Fuel Tax Agreement
As a carrier, there are two things to remember about IFTA:
First, this system of tax collection is entirely dependent on carriers accurately reporting mileage traveled and fuel that was purchased, received, and consumed. You must be able to substantiate this information for four years from the filing date or the due date of the tax return to which they pertain, whichever is later. Failure to provide records demanded for audit purposes extends the four-year record retention requirement until the records are provided.
Late filings, missing or inaccurate data, or a shoddy system for collecting and maintaining records are big red flags for fleettaxpro.com 3 auditors, who not only represent their own jurisdiction’s interests but also the interests of all other IFTA jurisdictions.
The second thing is that just because IFTA is an “agreement” doesn’t mean that every jurisdiction has the same set of policies or regulations when it comes to fuel tax.
IFTA: Do I have to register my vehicle?
Yes, if you operate a qualified motor vehicle in two or more IFTA- member jurisdictions. A “qualified” vehicle is used, designed, or maintained to transport people or property; and meets any of these weight requirements:
- three or more axles
- two axles and a GVW of at least 26,000 lb. or 11,797 kg
- is used in a combination that has a combined or registered GVW of more than 26,000 lb. or 11,797 kg
IFTA demands a systematic approach to understanding the rules and knowing how to comply with them. By exercising care and control over how you collect, report, and store data, you can avoid many of the mistakes that lead to exhaustive audits, penalties, and fines. Here are three steps you can take.
1. Report all distance on returns
You are required to report all distance for each vehicle licensed under your IFTA credentials. This includes:
- inter- and intra-jurisdictional travel
- loaded, empty, dead-head, and bobtail miles
- personal travel
- apportioned units operating under trip permits
- leased vehicles
- non-taxable miles (IFTA recognizes that some jurisdictions have unique economic and geographic characteristics, which have given rise to differing definitions of tax-exempt miles, vehicles, and fuel)
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“Report all distance” means all distance, even if you didn’t travel or did not owe tax in the quarter, or your vehicle traveled outside your base jurisdiction infrequently.
For example, say you have a vehicle that travels 150,000 miles in one year; 149,000 of those miles are traveled in your home jurisdiction and 1,000 miles are traveled in a neighboring jurisdiction. All 150,000 miles and all fuel purchases are reportable. You still must file an IFTA quarterly tax return and schedule(s) in four quarters of the year, even if you left your home jurisdiction only once during a single quarter of the year.
Without question, distance records are the most commonly cited issue during an IFTA audit. The main thing to remember is, once you put an IFTA decal on the truck, each and every mile it travels becomes reportable.
2. Know where your GPS data is
Onboard recording devices and vehicle tracking systems that use GPS or similar technology make it easier to capture distance data and produce the summary reports your jurisdiction requires.
However, GPS in and of itself does not calculate distance. It only records, based on longitude and latitude, where a vehicle is at a given moment in time. Routing software and transportation management systems make the distance calculation. How, when, and how often a “ping” is collected can greatly affect the result.
A computerized distance summary is not acceptable as the sole source document. In addition to the information required on your individual trip reports, an auditor may ask to see:
- GPS data for the vehicle to which the records pertain • date and time of each GPS “ping” or reading
- location of each GPS reading (lat-long)
- calculated distance between GPS readings
If the auditor asks for your original GPS data, are you prepared to respond? Where is that kept? And for how long? And what’s it going to take to get access to it?
In many cases you can use electronic trip data to support your IFTA returns in addition to or in lieu of paper documents. However, you still have to maintain individual trip reports to support the distance the vehicle actually traveled.
Saying you have GPS isn’t enough. Exception reports, calibration requirements, ties to meter readings (such as an odometer), and access to original data all contribute to the level of controls that auditors look for.
Simply put, the more controls you have in place, the more reliable the system tends to be, whether you generate data electronically or by hand.
Can I have more than one base jurisdiction?
Yes. If you operate more than one fleet that would otherwise be based in two or more IFTA jurisdictions, you can apply to each jurisdiction for permission to consolidate fleets in a single base jurisdiction for reporting purposes.
3. Check your retail fuel receipts
Every carrier must record all motor fuel purchased, received, and used. Separate totals must be compiled for each fuel type—gasoline, diesel, propane, blended fuels (e.g. gasohol and ethanol), compressed natural gas, liquid petroleum, and kerosene. Retail fuel and bulk fuel purchases are to be accounted for separately.
A valid receipt or invoice is vital in order to substantiate that tax was paid. Your base jurisdiction will list specific requirements for what makes a receipt valid, including the date of purchase, price, the quantity purchased, the seller’s name and address, and information to verify that the vehicle is IFTA-credentialed and belongs to your fleet.
Similar records must be kept for bulk fuel, including purchase and inventory records to substantiate that tax was paid on bulk fuel purchases.
Given the amount of information a receipt must contain, and the number of receipts that fueling a fleet of trucks will generate, mistakes are common. Among them:
- missing receipts
- receipts allocated to the wrong jurisdiction, or discovered for fuel purchases in jurisdictions with no reported distance
- no recorded fuel purchases for a vehicle with reported distance traveled
- receipts with evidence of erasures or alteration
These errors are costly, and not just in terms of the penalties and interest associated with non-compliance.
For example, if a receipt is missing or disallowed, you will pay tax twice: once at the pump and again on the IFTA return because you’ll have to declare it as non-tax paid fuel. If you include tax-exempt fuel use (for reefer units or other equipment that uses a separate fuel tank on the vehicle) on your IFTA report, you’ll lower your fleet-average fuel mileage and be charged more tax than you really owe.
Do I have to provide IFTA credentials to owner-operators?
Independent contractors that provide both the IFTA vehicle and the driver are considered either short-term (29 days or less) or long-term (30 days or more) lessors.
• Short-term leases: The lessor (independent contractor, agent, or service representative) is responsible for reporting and paying fuel taxes.
• Long-term leases: The lessee is responsible for reporting and paying fuel taxes unless a written contract stipulates that the lessor (independent contractor, agent or service representative) is responsible.
The government presumes that you know what you’re agreeing to when you apply for your IFTA license, yet auditors consistently say that even carriers who think they’re doing everything right, aren’t. What can you do to improve IFTA compliance?
• Each IFTA jurisdiction publishes a procedures guide for motor carriers, and it’s written in plain language and available online. Download a copy and study the requirements. For that matter, download your jurisdiction’s guide to the International Registration Plan. In many cases, an auditor will review IFTA and IRP compliance at the same time.
• IFTA Inc., the organizing body for states and provinces, publishes the IFTA Best Practices Audit Guide to help jurisdictions conduct IFTA audits. While jurisdictions aren’t required to follow these practices, the guide outlines general accounting and auditing standards, how IFTA sampling works, and what to expect during an audit.
• Expect an audit. IFTA jurisdictions agree to audit an average of 3% of their licensees per year, including carriers that are registered but report no activity. Many carriers haven’t seen an auditor in some time, if ever, so audit experiences just aren’t on their radar. However, auditors are now dispatched on multiple assignments, encompassing IFTA, IRP, and MJVT all at once. Because they use the same basic set of source documents, an infraction in one area may affect all three.
• File on time. You must file an IFTA tax return for each quarter in which you hold a license. Failure to file and remit amounts due by the stated deadline will result in an estimated assessment based on the best information available. Until all tax returns have been filed and liabilities paid, you will not be allowed to renew your IFTA registration for the subsequent year. Where an audit indicates severe problems, or when returns have not been filed and tax has not been remitted, you may be required to post a surety bond.
• Ask for help. A consultant who specializes in IFTA and IRP compliance can help you improve the way you manage fuel and vehicle taxes for your fleet. Look for someone with experience—anyone can hang out a shingle and call themselves a compliance service bureau. It’s worth the cost and effort when you consider the risk of a big assessment, not to mention the benefit of having reliable information that can help you make better decisions about your business.
A lot of this can seem hard to navigate. So many boxes to check and steps to take. We want to help.
Please take a moment to take a look at our Free Fleet Tax Compliance Toolkit.
This tool kit is made up of these invaluable resources and tools:
- Fleet Tax Compliance Guide (7 Critical things you need to know about Fleet Tax Compliance)
- [VIDEO] IFTA Fuel Tax 101
- Driver Trip Report (Excel Spreadsheet Template)
- How To Use the Driver Trip Report
- GPS Reporting & Checklist
If you have any questions regarding IFTA regulations or protocol, please reach out to us, we are here to help. Call us today or drop us a line via email. Here is our contact information:
Call us Toll Free: 1-877-860-8025