What is IFTA?
The International Fuel Tax Agreement (IFTA) is a pact between the lower 48 states and the ten Canadian provinces that require all interstate motor carriers to report fuel taxes. The agreement doesn’t affect Hawaii, Alaska, or the three northern Canadian territories.
IFTA was created to replace the old fuel tax system, in which trucks were required to have a separate decal for every state they operated in. The current IFTA reporting system simplifies the hassle of reporting fuel tax for trucking companies (including owner-operators) who operate across IFTA jurisdictions by reducing paperwork and minimizing the compliance requirements.
Keep in mind that IFTA is not an additional tax. IFTA was put into place to redistribute the tax to the states where the fuel is actually being used, not where it is purchased. This means no matter where you buy the fuel, you're paying the fuel tax in whatever states you're driving in.
What motor vehicles are required to follow IFTA?
IFTA is required for any motor vehicle with the following specifications:
Those with two axles and a gross vehicle weight rating or registered gross vehicle weight above 26,000 pounds
Those of any weight which has three or more axles
Any combination of vehicles with a total gross vehicle weight or weight rating above 26,000 pounds
How does IFTA work?
Every owner of a qualified motor vehicle must submit an IFTA application, or have their bookkeeper or accountant do so on their behalf. After you submit your application, you will receive an IFTA license as well as an IFTA decal for each qualified vehicle you operate. Whenever fuel is purchased, the amount is logged into the truck owner’s IFTA account.
At the end of each quarter, you must submit an IFTA report that lists the miles driven and the gallons purchased. These reports will determine either the amount of tax still owed or the refund you are due. The IFTA office in the trucking company’s home state will issue your refund or debt.
Quarterly reports must also be filed as long as the vehicle is operational. This must be done even if the truck isn’t used for commercial purposes for one or more quarters. IFTA decals expire every year on the 31st of December. Carriers have until the end of February of the next year to re-register.
What are the IFTA tax rates?
The IFTA tax rates vary by the state or province you are purchasing fuel. The IFTA tax rates change each quarter. Click here for the most updated fuel tax rate chart.
When must the IFTA reporting be filed?
For January through March, the due date is April 30th
For April through June, the due date is July 31st
For July through September, the due date is October 31st
For October through December, the due date is January 31st
How do I file an IFTA report?
Electronically: Your return is considered received the date it is submitted.
By Mail: Your return is considered received by the postmark date on the envelope.
Walk-in: Your return is considered received the date it is delivered to the office.
What happens if I fail to file or pay a quarterly return?
Failing to file a quarterly return within 30 days of the due date will result in your license being suspended and a Jeopardy assessment being applied. An IRS Jeopardy assessment is a significant escalation of a tax problem that is made when the IRS believes it’s at risk of losing money. If you file a quarterly return but fail to make a payment on the return - including late fees, interest, and penalties - within 90 days of the due date, your license will be repealed and you will be given a Jeopardy assessment.
Your license won't be valid until you have paid all tax, penalties, and interest. Once a Jeopardy has been assessed, you will have 60 days to file and pay the late return. After 60 days you will be responsible for paying the full amount of the Jeopardy. Once your account has been brought current, you will need to apply to have your license reinstated.
How does understanding IFTA help you save on fuel?
When you're trying to decide between buying fuel in one state compared to another state, you need to subtract the state fuel tax, from the retail price you pay for the fuel, in order to get the net price. This is because, with the IFTA policy that is currently in place, you are being taxed on which states the fuel is being used in, not where it's purchased. Because of this, fuel taxes are out of the equation, because they are being paid anyways. This means you might as well pay for fuel in the state where the net price is going to be the lowest, not the retail price.
Looking at the net price of fuel will give you an accurate comparison between each state. This means that even if a state has a cheaper retail price of fuel, it may be more expensive to buy fuel there in the long run if the net price is higher. As a simple example, at the border of Colorado and Nebraska, you may see the retail fuel cost in Colorado at $3.00 and the retail cost of fuel in Nebraska at $3.02. Judging by the retail cost, you would fuel up in Colorado. However, when you look at the net price of fuel before fuel tax it would actually be Colorado $2.79 ($.205 fuel tax) and Nebraska $2.74 ($.277 fuel tax). Considering that you will be paying the Nebraska fuel tax anyway when you drive across Nebraska, it would be cheaper to fuel up in Nebraska.
When thinking about this, the most important thing to keep in mind is, no matter what, you are paying the fuel taxes in the state you're driving in. This will hopefully help simplify this concept.
If you have any questions, please give us a call at 888-640-4829.