If you are operating a fleet business, you need to adhere to rules and regulations laid by the law. One of the vital compliances is the International Fuel Tax Agreement imposed by the State. Once the fleet managers know the rules and follow compliance guidelines, the company makes the right decisions and benefits the fleet.
If you are a commercial carrier that operates in U.S. states, you must ensure that you are eligible for IFTA, file the tax every quarter, and obtain a license. Here is a guide to know all about it.
What is IFTA?
IFTA is an agreement that is done between 48 states in the U.S. along with ten Canadian provinces. The objective of this agreement is to simplify fuel taxation. IFTA is a cooperative contract that permits the carriers to pay taxes on the fuel consumed across the states.
However, The U.S. states of Alaska, Hawaii, and the District of Columbia are not part of the agreement. Similarly, in Canada, the provinces that have accepted the tax agreement are:
- New Brunswick
- British Columbia
- Nova Scotia
- Prince Edward Island
Nunavut, Northwest Territories, and Yukon Territory in Canada are not IFTA members.
How does IFTA help?
Before IFTA, the fleets needed fuel permits from all the states they traveled to, leading to a cumbersome procedure. IFTA is a single fuel tax license that makes the process profusely easy and efficient. The truckers need not pay additional fees charged by the permit centers and frees their time significantly. Fleets also suffered due to the erratic filing periods, separate rules and definitions of the states, loads of paperwork and reporting needs, and more.
In 1983, Arizona, Lowa, and Washington created a solution to remove compliance challenges the fleet management companies faced. The new agreement offers clear guidelines, allows easy fuel tax payments, and enables lots of savings on administrative costs.
How does it work?
As per the rules, the carriers have to report the inter-jurisdictional fuel use to their state. Then, the form collects the taxes on net fuel use. The state is also responsible for processing the fuel tax returns and distributing the collection to other states on the list. The base state also takes care of ensuring compliance and conducting frequent audits.
Which fleet management needs IFTA?
If you are a carrier based in a member state and operate across other member jurisdictions, you need an IFTA license.
The eligibility includes:
- You must have an established business in the base state
- Increase mileage in the designated state
- Maintain all the records in the state
- Must operate in at least one other state listed under IFTA
IFTA also has the type of vehicle guidelines. For instance, a motor vehicle must transport property or people to qualify. The definition of vehicle should also ensure:
- The vehicle that has two axles may have a weight of around 11,797 kg or 26,000 pounds
- A vehicle that has three or more axles can have any weight
- A vehicle that weighs more than 11,797 kilograms or 26,000 pounds also qualifies.
How can fleet managers apply for an IFTA license?
If you require an IFTA license, then this is the process for you:
- You can download the application form online.
- You need to fill out the application form in your base state. The application form needs a business name, address, federal business number, and USDOT number.
- You can request additional decals.
- Send the filled forms by mail or fax or taxpayer service offices of your jurisdiction.
- The processing of your application starts.
- IFTA authority will provide you with an official decal.
- You receive a temporary license by fax while waiting for decals.
All about filing IFTA taxes
The IFTA licensee must file a quarterly tax return with their base state.
- The return due dates for 1st quarter from January to March is April 30
- The return due date for the 2nd quarter from April to June is July 31
- The return due dates for the 3rd quarter from July to September is October 31
- And, the return due dates for the 4th quarter from October to December is January 31
If you cross the deadlines, you will have to pay the late fees.
IFTA fuel tax reports
You can understand IFTA tax calculation in the steps mentioned below:
- It would help record the miles you have traveled in all the states. The Fleet managers and drivers must be careful incorrectly reporting the fuel consumed in different places. Many fleet management businesses use software to log the miles accurately you cover in each state.
- Then, the next thing is to record the total gallons of fuel the vehicle bought in every jurisdiction. The carriers must have original receipts and bills. It also acts as proof that you have paid the fuel tax. The fuel purchase documents must include –
- the type of fuel,
- vehicle number,
- date of purchase,
- name and location of the seller,
- amount of fuel purchased and its cost,
- and driver name.
- Now that you have the amount of fuel and distance traveled per state, you can easily calculate your fleet’s mileage separately for each state. The formula to calculate the fuel mileage is the total distance the vehicle covers divided by the total fuel gallons.
- Now comes the time to calculate tax for each state. You will have to use the amount of fuel bought per state as a critical metric to calculate the same. The IFTA website has a chart of fuel tax rates for all jurisdictions.
- Lastly, calculate the actual tax per state using the formula:
Fuel Tax needed in one state – fuel Tax paid in that state = Fuel Tax you need to pay to that state.
You must know that if your fleet travels in an IFTA state without a proper license, you will have to face a penalty. The penalty can be a citation or a fine.
IFTA has certainly streamlined everything. Now, fleet businesses need not worry about complex tax paperwork. IFTA saves time and helps in compliance as there is hardly any scope for making errors.