The trucking industry is a vital component of the American economy, but it comes with its own set of tax obligations. IFTA is a tax agreement that simplifies the reporting of fuel taxes for trucking companies that operate in multiple jurisdictions, or states. We’ve put together some pointers to help you understand the IFTA basics.
1. Know The Requirements
You’re required to apply for an IFTA license and file an IFTA report if you operate a motor vehicle that is used, designed, or maintained for transportation of persons or property and:
Has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds or 11,797 kilograms; or
Has three or more axles regardless of weight; or
Is used in combination, when the weight of such combination exceeds 26,000 pounds or 11,797 kilograms gross vehicle or registered gross vehicle weight.
See IFTA’s website for source.
On December 1 of each year, you’ll need to renew your IFTA license. You’ll also get new license decals for every eligible unit.
Typically, the owner of the vehicle is responsible for reporting and paying the taxes. However, if you’re an owner operator under a lease agreement with a carrier, make sure you check your agreement. The carrier might obtain the license. If that’s the case, they’ll probably collect your fuel and mileage throughout the quarter, then share the IFTA costs by deducting the amount from your pay settlement.
Most US states and parts of Canada are part of the IFTA jurisdiction. New York, New Mexico, and Kentucky have an additional weight-distance tax. First, determine your base jurisdiction. This is the state where your trucks are registered. Your IFTA base jurisdiction will process your returns and provide you with all of the information you need to know.
To meet reporting standards, you’ll need to be recording the miles driven and gallons purchased in each US state. We’ll get more into that later.
2. Make Sure You File On Time
Your IFTA report is submitted to your base jurisdiction on a quarterly basis.
If you file your IFTA report late, or not submit it at all, it’ll lead to a fine. That fine is either $50 or 10% of the net tax liability (whichever is greater). Depending on your jurisdiction, you might even see some interest charges. In addition to the fine, you’ll be running the risk of getting audited.
Staying on top of your mileage and gallon data throughout the quarter will help you file your IFTA report on time each quarter.
Most state jurisdictions have online portals where you can fill out a form with your mileage and gallon totals, then submit online for processing.
3. Collect Total and Taxable Mileage
Throughout the quarter, record every mile driven in every single state. You can do this a few ways.
The old school method of recording miles is recording your odometer as you enter a state, and then recording it again when you leave the state. You can enter these state totals into your software or a spreadsheet to keep track of them. Make sure you include a date on each entry to help you determine which filing quarter they end up in.
With ELDs in most trucks these days, technology has given trucking companies the gift of simply importing your mileage data into trucking software. That data is stored for you so it can be combined with gallon purchases throughout the same period of time.
Quality trucking software should also be integrated with mileage programs. That should allow you to calculate IFTA miles on every single load you’re recording.
At the end of the quarter, you’ll need your total miles, your total taxable miles per state, and your total non-taxable miles per state.
Taxable miles are considered any miles driven in IFTA jurisdictions (states that participate in IFTA). This includes deadhead miles and personal miles.
So, what are non-taxable miles? This includes miles that are driven in non-IFTA jurisdictions, such as Hawaii, DC, Mexico, and some parts of Canada. Other mileage exemptions will depend on the jurisdiction you’re recording the miles for. Make sure you’re recording these miles as part of your total mileage count, but they need to be notated as non-taxable.
4. Record Fuel Purchase Gallons
In addition to mileage, you’ll need to record every gallon that is purchased and which state the truck fueled up in.
Most fuel card providers offer files or reports that you can download. Find out if your trucking software provider can import this information. That should save you a lot of time, especially if the software can also record the expense at the same time.
Reefer fuel and diesel exhaust fluid are not subject to IFTA taxes, so make sure you don’t include those gallons in your taxable gallons per state figures. Other fuel exemptions, such as idle time, depending on the jurisdiction.
At the end of the quarter, you’ll need your total taxable gallons in each state.
5. Calculate the Tax Owed or Due
At the end of each quarter, you should have the following figures:
- Total miles
- Total gallons
- Taxable miles per state
- Non-taxable miles per state
- Total gallons per state
Using these figures, you’ll use the IFTA formula to calculate how much tax is owed or due back to you.
Start by calculating your fleet’s overall AMG.
Next, for each state, use an equation that determines the tax liability owed or due for that state. Take your taxable miles and divide them by your AMG to get your taxable gallons for that state. Subtract the gallons that you purchased in that state to get your net taxable gallons. Multiply your net taxable gallons by the state’s current IFTA tax rate to get the calculated tax owed or due for that state.
Add up each state’s end tax liability as your total tax liability. Most trucking software will include a report that automates this computation for you.
6. Look For Errors
Filing IFTA with errors is asking for an audit. Before filing your report, carefully look over your totals. Does each state look correct? It wouldn’t make sense to see gallons purchased in a state, but have no miles in that state. You know your fleet and which states your units travel in. Quality software should help you audit and crosscheck your miles and your gallons.
By taking the time to understand IFTA and its requirements, you can minimize the risk of fines and penalties.
With Frontline Q7, you can stay on top of your IFTA obligations. Use import tools and other intuitive programs to get your gallons and mileage stored, and let the software do the tax computation for you.