To a trucker, IFTA and IRP are a decal and a cab card needed to get through a scale or a roadside inspection.
To a fleet administrator, they’re a set of rules to follow in order to file fuel tax returns and vehicle registration renewals. To the people paying the bills, they’re an unwelcome but necessary expense.
To the provinces and states that are signatories to these agreements, IFTA (the International Fuel Tax Agreement) and IRP (International Registration Plan) are tax collection and distribution mechanisms.
Don’t you forget it.
No matter what you think of them, IFTA and IRP exist to help governments collect their fair share of fuel taxes and registration fees.
And like many tax programs in Canada and United States, they’re based on what amounts to an honor system.
They count on the trucker to keep accurate trip reports and fuel records. They count on the fleet administrator to file returns and renewals on time, and to keep accurate records to back up their claims. They count on the people paying the bills to, well, pay their bills.
The 3% Standard
This honor code goes only so far.
Periodically, carriers are audited to make sure they comply with IFTA and IRP. Each member jurisdiction has agreed to audit 3% (excluding new licensees) of its license base every year.
Let’s put that into context.
In 2013 (the latest year available), Alberta had 2,817 IFTA licensees (less 94 new licensees) and conducted 70 audits, or 3%. British Columbia had 1,671 IFTA licensees (less 201) and managed to audit 45, or 3%. Saskatchewan had 907 licensees (less 114) and audited 24, or 3%.
(Nice work, Western Canada.)
Not every member meets the 3% standard, though.
Big jurisdictions like Ontario, California, and Pennsylvania with lots of carriers have to produce hundreds of audits each year in order to make their quota. That’s a challenge when you’re a government strapped for resources. Yet shortfalls are taken very seriously.
Both IFTA and IRP have compliance review committees which meet monthly by conference call and host a workshop annually for government and industry. They keep close tabs on the number of audits each jurisdiction performs. If a jurisdiction is out of compliance, it has a grace period to get into compliance.
If a member fails to meet the 3% audit standard, it risks being kicked out of IFTA and IRP.
Why the fuss?
Unlike an income tax audit, where the auditor represents one party (the federal, provincial, or state government), the person conducting an IFTA and IRP audit is working on behalf of every member jurisdiction.
If one jurisdiction ignores its audit obligations, it risks compromising not only its own tax revenue but revenue that rightfully belongs to other provinces and states.
Take New Jersey, for example.
New Jersey manages more than 12,000 licensees. It was out of compliance having conducted zero audits. That’s right, zero. Now don’t go stampeding to get an IFTA license in New Jersey; as of 2013, the state is meeting the 3% quota.
But can you imagine the chaos if New Jersey carriers were unable to get an IFTA license?
If you have trucks in the IFTA or IRP program, it’s tempting to look at that 3% figure and think you’ll never get audited.
Well, think again.
The plates and decals on your truck are the duck floating on the surface of the lake. The audits conducted both on carriers and jurisdictions are the real motors of IFTA and IRP. They’re the heart of the tax collection and distribution machine.
Today auditors are handling IFTA and IRP all in one shot. Your exposure during an IFTA audit will extend to vehicle licensing as well.
Who knows? Maybe your base jurisdiction hasn’t met its audit standard and is getting ready to make up for lost time this year.
Maybe 2015 is the year your number comes up. It happens eventually.
Next time you think of IFTA and IRP, think how equipped you are to weather an audit. It’s worth the effort to be accurate when you consider the risk of a big assessment.