All Information About IFTA
If you are a driver or owner-operator in the logistics trade, you will know all about fuel tax. It is this kind of payment that eats into your profit margins and makes it difficult to calculate the returns on your investment for each job. The government relies on the revenue this levy provides, so don’t expect to see fuel taxes disappearing any time soon. However, measures have been put in place that make life that little bit easier for organizations in this field.
- What Is IFTA Tax? A Brief Overview
- Which Areas Are Covered Under the IFTA?
- The History of the IFTA
- Do I Need an IFTA Sticker and License?
- What Is IFTA License and How to Apply?
- Filing IFTA Fuel Tax Reports
- How to Fill Out IFTA Fuel Tax Reports?
- Getting Help with IFTA: Making Life Easier for Your Business
One such measure is the IFTA. This is something that removes a great deal of the strain and the expense of running a logistics business across the United States and Canada. But what exactly is the IFTA, and how do drivers and owner-operators benefit from it? Learn more in our complete guide and discover how Logity Dispatch can help you make the most of these advantages.
What Is IFTA Tax? A Brief Overview
The IFTA stands for the International Fuel Tax Agreement. This is an agreement that exists between the nations of the United States and Canada, allowing carriers and logistics firms that operate in both countries to do so on a single fuel tax license.
This agreement does not cover the whole of the United States, nor does it cover the entirety of Canada. Instead, the Lower 48 states of the US are covered, while ten provinces and jurisdictions of Canada are covered, too. Carriers and logistics professionals who move between these states and provinces, including those who operate across the international border, pay their fuel tax directly to the state or province they are based in. Each state and province still draws its tax according to its own laws, but there is no need for owner-operators and drivers to file complicated fuel tax reports for each state line – or other jurisdictionary boundary – crossed.
The agreement is designed to save time, money, and effort. In the process, it also provides a boost to local economies as this agreement supports the work of logistics and haulage firms rather than hindering them.
Which Areas Are Covered Under the IFTA?
As discussed above, ten states and provinces of Canada are included in the International Fuel Tax Agreement. These are:
- British Columbia
- New Brunswick
- Newfoundland and Labrador
- Nova Scotia
- Prince Edward Island
Basically, any driver or logistics firm is covered right across Canada, excluding the three northwestern territories of Yukon, Northwest Territories, and Nunavut.
In the US, the list is even more comprehensive. Drivers and logistics firms will benefit from the IFTA across all of the lower 48 states. The only jurisdictions NOT covered by IFTA are as follows:
- Alaska is NOT covered under the IFTA.
- Hawaii is NOT covered under the IFTA.
- The District of Columbia is NOT covered under the IFTA.
- ALL OTHER states ARE covered under the IFTA.
The History of the IFTA
The International Fuel Tax Agreement is just one in a long line of agreements and cooperations that have flourished as part of the friendly relationship between Canada and the US. Like many other legal and political agreements between the two countries, the IFTA was born out of a very specific need – in this case, the need to collect fuel tax without damaging the businesses of owner-operators and drivers in the field of logistics.
Each year, millions of tons of freight cross back and forwards across the US-Canadian border. This freight provides a huge boost to the economies of both governments and societies north and south of the border, but this is not the only border that the freight must cross. The federated systems of both the US and Canada mean that each individual state, province, or territory is permitted to set its own taxation limits and regulations. This leads to complications during cross border trade and logistics processes.
To put it simply, before the IFTA was implemented, drivers of freight vehicles were required to apply for fuel permits for every single state and territory entered on their journey. This does not cause too much hardship if the journey is between the New York State in the US and Ontario in Canada, or between Maryland and Pennsylvania. But, often, this is not the case. A driver may find themselves driving across ten or more state and provincial boundaries on their way to the destination, particularly in the northeastern US where state boundaries are more numerous.
The fact that individual fuel permits need to be applied for is troublesome enough for logistics firms. However, there are many more factors to be taken into account. Drivers and organizations had to contend with:
- Differing rules regarding filing periods and filing requirements between different states and provinces
- Differing definitions of key legal and tax terminology between different states and provinces
- Different things that need to be reported, with some states and provinces relatively relaxed in terms of requirements and others imposing stricter reporting regulations
- Differing permit costs between states and provinces
- Differing filing processes between states and provinces, with some states and provinces requiring in-person filing and others allowing filing to be handled online
All of this contributed to soaring costs for logistics firms. Not only did they have to pay for these additional permits, but they also had to eat into their fuel resources when traveling to permit processing centers, risk late cargo deliveries through permit violations, and potentially lose business along the way. It was a very negative situation indeed.
Following the implementation of the IFTA, logistics firms and drivers now find that their life and work is much easier. Businesses are saving thousands of dollars a year on the reduced admin costs – even millions of dollars in some cases. This achieves a better deal for company bosses, drivers, clients, and the general public alike.
Do I Need an IFTA Sticker and License?
Not all businesses or drivers need an IFTA fuel sticker for trucks or the license that accompanies these stickers. Basically, you will need an IFTA license and the proper decals if you meet the following criteria.
- You operate a commercial haulage vehicle or logistics fleet.
- You use vehicles that are classed as “qualified motor vehicles” under IFTA rules. This means:
- A vehicle designed to transport people or property between locations
- A vehicle that fits into one of the following categories:
- The vehicle has two axles and a gross vehicle weight of more than 11,797 kg (26,000 lbs) – basically, any vehicle with a weight above this level will need an IFTA sticker.
- The vehicle has three or more axles (no weight requirement for this category).
- You are based in one of the member states or provinces listed above.
- You operate across two or more of these member states or provinces.
What Is IFTA License and How to Apply?
If your business meets the above criteria, you will need to display an IFTA sticker on your vehicles and have a valid IFTA license for your business.
You will need to apply for your license, and the stickers to signify that your vehicles are in accordance with IFTA requirements, in the state or province in which your business is based. You will need a registered business name, a business mailing address, a federal business number, and USDOT number in order to apply.
Where and how you file your application will depend upon the state you operate in. You will need to change your IFTA sticker each year to show that your IFTA status is fully up to date. IFTA sticker costs vary between states and provinces.
Filing IFTA Fuel Tax Reports
What is IFTA reporting? This refers to the IFTA fuel tax reports that need to be filled out and filed on a quarterly basis. The deadlines for each filing are as follows:
- April 30th for the 1st quarter of any given year, or the period between January and March
- July 31st for the 2nd quarter of the year, or the period between April and June
- October 31st for the 3rd quarter of the year, or the period between July and September
- January 31st for the 4th quarter of the previous year, or the period between October and December
Pay attention to these deadlines as late payment fees are applied to missed filing dates.
How to Fill Out IFTA Fuel Tax Reports?
The IFTA has added a great deal of efficiency and ease to the process of interstate, and even international, trucking. However, the IFTA fuel tax report process can still seem a little cumbersome and confusing, particularly when longer and more complex journeys are required across many different jurisdictions and borders.
The process of tracking and completing your Fuel Tax Reports under the International Fuel Tax Agreement is as follows.
- Total Your Fuel Purchases
During the driver’s journey, they will need to purchase fuel to keep their vehicle on the road. As this fuel is taxed, they will need to keep a record of such purchases as well. The record will include:
- The date on which the fuel was purchased
- The name of the vendor and their location
- Details of the fuel type – diesel, for example
- The registration plate number of the vehicle
- The amount of fuel purchased in gallons
- The price of each gallon, as implemented by the fuel vendor at the location
- The name of the driver
The driver will also need to keep hold of all receipts for fuel purchases. These serve as proof of purchase and of payment for the fuel that is consumed as you calculate IFTA miles.
- Apply the Appropriate Tax Rates
Now that you know how much fuel you purchased in each jurisdiction, you can apply the appropriate trucking fuel tax rate for each section of the journey. The International Fuel Tax Association website provides the latest tax rates for each state and province by the agreement. These rates change on a regular basis, so it is wise to refrain from calculating your rates until the tax is due to be paid at the end of each quarter.
- Calculate the Tax Balance Due
Simply subtract the tax you have paid in each state or province from the total tax due in that jurisdiction. This will give you a value for the remaining tax balance that is due in that particular location.
The receipt you receive when you pay for your fuel will have details of the fuel tax that has already been covered in the transaction. Keep hold of these receipts and then use these values to arrive at the tax balance due. You may need the original copies of the receipts to provide proof of tax paid.
Additional Elements to Be Aware Of
There are other factors involved in the calculation of tax. After subtracting the paid tax from the required tax, you have a raw total, but these elements can contribute to or reduce the total amount of tax you need to pay.
- In some jurisdictions, not all miles are taxable. But what are non-IFTA miles exactly? One example involves driving to a location in order to deal with an issue with your fuel permit. In this case, some jurisdictions will not apply tax to the fuel consumed on this part of the journey.
- Surcharges apply in some jurisdictions. If you are traveling through one of the IFTA surtax states, be sure your drivers only purchase the amount of fuel necessary to complete this portion of the journey.
Keeping Your Fuel Tax Low
The above steps help you to work out the tax due for each journey, and they provide you with some of the information you need to report. However, there are additional steps you can take to help you keep on top of your fleet’s fuel consumption. This is a crucial part of fleet management as faulty vehicles and inefficient driving habits can see you paying well over the odds for your fuel tax. You need to be able to recognize these inefficiencies in a swift and timely manner.
- Keep a Record of the Amount of Miles Traveled Across Each Jurisdiction
In order to save on administrative tasks, drivers are able to pay fuel tax together in one lump sum under the IFTA rules. However, the compromise is that drivers must keep track of the amount of miles traveled in each applicable jurisdiction. Provided that the journey is well planned and that the vehicle’s instruments are working, this should not be a problem.
- Total Your Fuel Consumption in Each State
The total fuel consumption for each state is derived using two simple formulae. First, divide the total gallons of fuel used by the total miles traveled. This provides the miles per gallon, or MPG, across the whole journey.
The MPG should be recorded to two decimal places and can be rounded off to the nearest two decimal place value.
Divide the total miles driven in each state or province by this MPG value to arrive at a value for fuel consumed in each state.
Complete this second formula for each state or province entered during the reporting period.
Getting Help with IFTA: Making Life Easier for Your Business
Many business owners and drivers are still unsure about how to do IFTA quarterly reports. While the IFTA does make life much easier and saves serious money for operators and drivers, there is still a lot of work involved as entities calculate IFTA tax and submit the right reports.
It is also worth noting that the stakes are high for businesses. If logistics businesses and trucking companies do not properly calculate and report their taxable fuel consumption, this can lead to overpayment of tax at best or a strict penalty at worst.
So, what is the answer? How to file IFTA taxes in accordance with the applicable laws and regulations? This is where Logity Dispatch can help.
One of the services we provide is IFTA tax reporting. Our expert team can use your information to calculate the tax you have to pay, as well as any non-taxable miles you can use to reduce your tax bill. We can also help you fill out IFTA tax forms and submit these reports on time and in an accurate manner.
To learn more about this service or to enjoy the advantages that Logity Dispatch can offer to you and your fleet, reach out to our team today. We are ready and waiting to help you get to grips with IFTA reporting and to assist you as you make your fleet more profitable and more efficient.