When you Google “IFTA” in your ongoing quest for fuel tax wisdom, it’s a little weird to see “IFTA Inc.” at the top of the search results. I mean, what is that? A company that processes tax returns?
IFTA Inc. is a not-for-profit corporation formed to manage and administer the International Fuel Tax Agreement. In short, it helps make sure that all 48 states and 10 provinces that signed on to IFTA are working together.
When you think about it, IFTA is a remarkable tax system. Each jurisdiction collects fuel taxes on its own behalf and also on behalf of 57 other jurisdictions, all the while retaining sovereign authority to set its own tax rates, exemptions, and other rules.
With so many different jurisdictions involved, plus those of us from the industry side, someone needs to conduct this band to make sure everyone is playing off the same sheet. That job falls to IFTA Inc.
It’s no easy task. State and provincial fuel tax administrators are debating a wide range of issues right now, including two key items on the agenda for 2015:
1. Taxing CNG and LNG
While natural gas is moving full-speed-ahead as a fuel for commercial trucks, the IFTA community is still rounding the learning curve on how to report and tax it.
CNG (compressed natural gas) and LNG (liquified natural gas) are not taxed at the same rate. Heck, CNG isn’t even measured as a liquid. It’s a gas, measured in cubic feet or cubic meters. You have to convert the gas into a liquid in order to calculate the tax, and conversion rates vary from jurisdiction to jurisdiction. Then you have to deal with evaporation rates (liquid vs gas). U.S. and metric measurement systems complicate matters even more.
A move toward uniform tax reporting of natural gas is under way. IFTA members are reviewing a proposal to adopt the IRS conversion factor of 126.67 cubic feet of natural gas to equal a gallon of gasoline starting in July 2016. This should make it easier to convert CNG to liquid volumes and report it on the IFTA tax return.
With LNG, two different methodologies exist to convert the fuel from weight measures to volume measures: straight weight, where 1 gallon weighs 3.5 pounds, and energy equivalent weight, where 1 Diesel Gallon Equivalent (DGE) weighs 6.06 pounds.
In the United States, retail stations want to use DGEs so the public can compare the costs of using LNG with diesel. Also in the U.S., the responsibility for determining measurement requirements has been delegated to the state level. Currently, 17 states have adopted the definition that a DGE of LNG weighs 6.06 pounds.
In Canada, the federal government determines the units of measure and is strongly opposed to energy equivalents. As a result, all provinces will be required to sell LNG in mass units of measure (e.g., kilograms).
There are other alternative fuels in development. Ever heard of dimethyl ether? Neither had I. It’s yet another fuel being tested—and one that will need to be measured and taxed if it’s used in IFTA-qualified vehicles, just like natural gas.
2. GPS-based Distance Records
The success of IFTA is rooted in cooperation not only among jurisdictions but also between government and industry. Nothing tests (or strains) this cooperative spirit like a compliance audit.
For several years, a subcommittee of tax administrators and industry representatives called the IFTA Compliance Audit Working Group (I-CAWG) have been working on a long list of proposed rule changes ranging from the retention and availability of records to the adequacy of records to conduct an audit. One key topic involves records produced wholly or party by a vehicle-tracking system, including distance records based on a global positioning system (GPS).
I’ve written about this in previous columns and I’ll continue to beat the drum: there is no consensus among the jurisdictions about how GPS should be used to report IFTA/IRP distance. Once there is consensus, a change may take several years to implement.
If you’re a carrier, this much is certain. First, you have to comply with the rules as they stand today. No matter how you collect the data you use to calculate distance (meaning manual trip records or something electronically generated), it’s up to you to satisfy whatever jurisdiction will audit you. Study its IFTA compliance manual. If you have questions, contact your provincial fuel tax office or seek help from a service bureau with experience managing IFTA compliance.
Second, monitor the issues. One of the benefits of IFTA Inc. is that it’s a clearinghouse of ballot measures, presentation materials, and meeting minutes, all of which are available at the IFTA web site, www.iftach.org. Bookmark it—no Googling necessary.
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
About the Author:
Sandy Johnson is the founder and managing partner at North Star Fleet Solutions in Calgary. The company provides vehicle tax and license compliance services for trucking operations ranging from single vehicles to large fleets. She can be reached at 877-860-8025 or northstarfleet.com.