IFTA, or the International Fuel Tax Agreement, is a deal set up between Canadian Provinces and most US States. Specifically, the arrangement exists to simplify how commercial trucking companies pay the motor fuel taxes they owe as they travel through various states and provinces.
IFTA was designed for truckers and trucking companies whose routes often bring them across state lines or through various Canadian provinces. The arrangement cuts down on the amount of paperwork required for such trips while simultaneously streamlining the payment of fuel taxes and ultimately helping drivers and fleet managers save money.
Why Was IFTA created?
Fuel taxes are determined on a state-to-state or province-to-province basis. In order to determine how much in fuel taxes a trucking company owes, the driver must acquire a permit and record their fuel purchased and miles driven during their routes.
Before the creation of IFTA, truck drivers had to purchase a different permit for each individual state or province they traveled through. Not only was this more expensive, but it also made filing and maintaining permits unnecessarily complex.
It wasn’t until the early 80’s that a solution was found. During this time, a handful of US states and Canadian provinces agreed to set up a joint revenue distribution program to eliminate the need for individual permits. Eventually, as more states and provinces joined, this arrangement became the International Fuel Tax Agreement.
As of today, the IFTA includes the 48 contiguous US states and all ten Canadian provinces.
How Does IFTA Work?
To receive an IFTA license, a trucker with a qualified motor vehicle must first submit an IFTA license application in the state where their motor vehicle is registered. This state is considered their “home state”, or base jurisdiction. Once accepted, the driver will receive their IFTA license and two IFTA decals that must be visible on their vehicle at all times.
As the IFTA licensed driver moves through jurisdictions on their route, they are required to record their fuel consumption, fuel purchase history, and miles driven during the route. Drivers must report this information to their base jurisdiction every fiscal quarter.
The IFTA program takes this information and helps to calculate the tax credit or taxes owed for each individual driver. IFTA then aids in the process of collecting what is due and oversees the distribution of the revenue to the various jurisdictions used in the drivers’ routes.
What Are the Benefits of IFTA?
Overall, IFTA was created with the goal of simplifying an overly complicated process. By requiring only a single permit, truck drivers are no longer required to stop at a port of entry for each jurisdiction they enter, saving time and money.
IFTA also makes the process of staying compliant with the laws significantly easier for truckers and large trucking operations. When a separate permit was required for each jurisdiction a commercial vehicle passed through, drivers would often face varying or even conflicting laws regarding fuel taxes.
This made paying these taxes very complicated and increased the chances of companies or individuals making a mistake. IFTA streamlines the entire process, making it easier on all parties involved.
IFTA is also excellent in making sure the revenue from these fuel taxes is spread fairly throughout the jurisdictions. A majority of the fuel tax money goes into highway, and interstate maintenance, which are the roads used most by commercial truck drivers. In the end, everyone wins.
IFTA Qualifications
In order to qualify for an International Fuel Tax Association license, you must be based in an IFTA-qualified jurisdiction, and drive routes that bring you into or through other qualified jurisdictions. If you are based out of Canada or the contiguous United States, you are in an IFTA-qualified jurisdiction. Hawaii and Alaska are the only non-IFTA jurisdictions in the United States.
You must also operate an IFTA-qualified vehicle in order to apply for a license. This includes heavy commercial vehicles with three or more axles or commercial vehicles with two axles and a gross combined weight of over 26,000 pounds.
Personal or recreational vehicles are not qualified for IFTA licensing. Additionally, a combination vehicle with a registered gross vehicle weight of over 26,000 pounds is eligible.
Reporting With IFTA
Members of the International Fuel Trade Agreement are required to submit their fuel tax report every fiscal quarter. These reports must include miles driven, fuel usage, fuel type, and gallons purchased along their routes for the previous three months. Any relevant documentation such as fuel receipts should be included in the report.
These fuel tax reports are initially sent to the base jurisdiction of the driver. The base jurisdiction reviews the reports, then sends its tax calculations out to the other jurisdictions where the driver operated during that quarter. Finally, the amount of fuel tax owed is reported back to the driver or business.
The truck driver or trucking company then pays whatever fuel tax is owed to their base jurisdiction, who in turn pays out the other jurisdictions their owed fuel tax.
Audits and Penalties
Unfortunately, audits are a fairly regular occurrence in the life of an IFTA-licensed truck driver. Each IFTA jurisdiction must audit 3% of its licensees each year. Even experienced drivers who remain compliant throughout their careers are not immune to being audited.
Any late fuel tax reports will incur a penalty of 10% of the quarter’s net tax liability or $50, whichever is greater. Additionally, drivers face an interest charge of 1% per month on all late taxes to each jurisdiction. Worst case scenario, a driver could lose their IFTA license for reporting inaccurate data.
Remaining Compliant
The best way to ensure you remain compliant and avoid fines as an IFTA licensee is to turn in your fuel purchases reports on time and make sure they are as accurate as possible. A majority of fines incurred during the auditing process are due to bad record-keeping practices or inaccurate data.
Luckily with the help of the smartphone, there is a myriad of online and mobile tools that can use the phone’s GPS to help in tracking all of that data. This will simplify IFTA reporting even further, giving you more peace of mind when it comes time for the quarterly report.
Make IFTA Even Easier With a Fleet Card From Guttman Energy
Before the IFTA agreement, the process of fuel tax collection was over-complicated and prone to error. Now, whether you’re driving through the United States or a Canadian province, you can relax and focus on your route, helping you save time and, most importantly, save money.
With fleet fuel cards, the process becomes even easier. A fleet fuel card program allows your to:
- Track spending in real-time
- Create detailed reports for individual truckers or entire fleets
- Save on gas with more accurate monitoring
- Save and record all purchases for IFTA regulations
- Track vehicle maintenance
- Control fuel expenses
Operating a fleet of vehicles requires attention to detail not only for the sake of your bottom line, but for regulatory purposes as well. Fleet cards with a fleet management system takes the legwork out of this, so you can focus on doing what you to do best: keeping the world moving.
