Every company wants to stay in compliance with the latest standards and regulations and also ensure that their IFTA tax rates are not overpaid or underpaid.
Therefore, any individuals or companies, running commercial vehicles or trucks across many Canadian provinces or US states have to be mindful of the International Fuel Tax Agreement (IFTA).
Understanding the IFTA tax rates
The International Fuel Tax Agreement is a collection of fuel taxes and a sharing agreement for the redistribution of fuel taxes paid by interstate commercial fleet companies.
IFTA consists of 58 member jurisdictions, including 48 U.S states and 10 Canadian provinces. IFTA allows the payment of IFTA tax rates on the fuels that commercial trucks drivers who are operating between more than one jurisdiction use.
As a result of this IFTA tax rates law provision, licensed inter-jurisdictional commercial truck drivers can collect, from the jurisdiction where their operations are based, a single license.
IFTA requires drivers to register and pay taxes to one jurisdiction only, thus simplifying their duties.
IFTA tax rates payable on fuels used by commercial vehicles drivers like natural gas, methanol, ethanol, gasoline, diesel, propane, and many others are tracked and collected by all jurisdictions of the Member States
Then members’ states share the revenues accordingly, depending on the amount of fuel used and the distances traveled by the driver in each jurisdiction.
In each jurisdiction, the distances traveled, and the quantity of fuel used are reported and documented by the commercial driver.
By mandating commercial fleet operators to pay fuel taxes proportionally, depends entirely on the miles traveled in each state or province, the IFTA tax rates agreement helps to ensure that each jurisdiction does have its fair share of the money to be earmarked for road and transport.
Brief History of the International Fuel Tax Agreement (IFTA)
Historically, transportation has been financed by motor fuel taxes. To balance the government budget and also pay for public services to boost economic growth, the very first fuel taxes of 1919 and the 1-cent gas tax, formalized in 1933, were introduced.
The decision was made in 1956 that fuel tax revenue must be specifically targeted to the new Highway Trust Fund to support the rapidly increasing Interstate and highways system.
Under the IFTA tax rates arrangement, eligible commercial motor carriers may receive IFTA license for their vehicles, enabling them to pass across other IFTA jurisdictions and submit only one quarterly fuel tax return in their company base jurisdiction for fuel usage.
When IFTA does not license commercial motor carriers, they would have to comply with the guidelines on fuel tax reporting for each jurisdiction through which they travel, and this may include obtaining permits for fuel trips.
IFTA, in addition to the ELD requirement and Hours of Service Management, is an essential part of fleet compliance.
Four Parts of IFTA Fuel Tax Forms
IFTA fuel tax forms have four too complicated parts because, for every trip, the information needs to be filled out.
Thankfully, we have lists of fleet management solutions that make it much easier for trucking companies to stay in compliance, even with the criteria of IFTA fuel tax reporting.
However, if you need help in choosing the best fleet management solution suitable for your business needs when it comes to compliance with IFTA rules, kindly fill our consultation form.
We all know that non-compliance and incomplete records can be incredibly costly.
Part 1 – Mileage
IFTA fuel tax forms involve details of each travel. The fuel tax forms ask for sensible things such as the origin, destination, start, and end dates.
Needed details, however, also includes trip routes, odometer readings beginning and ending, total miles, and miles within each jurisdiction.
Also, the distance between taxable and non-taxable miles must be broken down.
Part 2 – Fuel Receipts
In compliance with IFTA tax rates, relevant information must be retained on fuel receipts. A few of the specifications include the date of purchase, type and amount of fuel, and the name of the sellers.
However, carriers that use tax-paid bulk storage must document each withdrawal of fuel.
Part 3 – States
Each state collects its fee.
Part 4 – Fuel Tax Reporting Periods
The IFTA forms payment should be paid at the tax bureau by April 30 for the first quarter. Fortunately, some Fleet Management solution makes it effortless to prepare such documents.
And this FMS will assist with monitoring each load’s income, costs, mileage, and expenses.
What Territories Recognize the IFTA? – IFTA and Non-IFTA Jurisdictions
The IFTA member jurisdictions work together to implement, collect, and share taxes on motor fuel. IFTA licenses are valid for travel in the lower 48 jurisdictions in the United States and ten provinces in Canada.
Several jurisdictions have not been members of IFTA where IFTA licenses are not relevant, including Northwest Territories, Nunavut, Alaska, Hawaii and Columbia District, Yukon, and Federal District of Mexico.
Not all Canadian territories and U.S. states are part of the IFTA tax rates agreement. And when drivers travel through all of these areas, the driver will take separate records and pay any taxes owed to these jurisdictions separately.
What is The Reporting Process of IFTA?
Under IFTA regulation, commercial truck drivers are required to keep accurate records of driven miles, purchased gasoline, and fuel tax paid in each state or province they pass through.
Carriers send these reports for review annually to the IFTA based in their jurisdiction. Then, the jurisdiction decides whether or not they owe taxes or will collect a credit.
Although IFTA tax rates allocation is such a diverse and complex process, IFTA, together with the International Registration Plan (IRP), facilitates the process and provides support and advice to states and regions on conducting their programs.
The current IFTA tax rates are available on the IFTA website.
8 Steps of the IFTA Process Overview
Now, let take a look at the overview of the process.
- Step 1 – Commercial carrier needs to submit to its business base IFTA jurisdiction an application for an IFTA license.
- Step 2 – The IFTA in the business base jurisdiction checks and approves the application for a license.
- Step 3 – The commercial carrier collects the IFTA license for each eligible vehicle and two decals for each. And when the vehicle is in operation, a copy of the license should be put inside the vehicle.
- Step 4 – The licensed carrier will then submit a quarterly IFTA tax return to the IFTA in their base jurisdiction for fuel used and also remits any due amounts.
- Step 5 – IFTA tax return review and processing will then be carried out by base jurisdiction.
- Step 6 – The IFTA in the carrier base jurisdiction sends a transmittal report to all the other jurisdictions where the vehicle was operating in.
- Step 7 – All payments and transmittal reports from other states are handled through the carrier IFTA base jurisdiction
- Step 8 – Carrier pays whatever they owed to the base jurisdiction, and base jurisdiction pays all other IFTA jurisdictions what they owe and receive what is due to them from other jurisdictions.
When Are IFTA Taxes Filed?
The IFTA tax rates primarily benefit truck drivers who travel and pass through various jurisdictions regularly and then use fuel in all those jurisdictions but only buy the fuel in one province.
The IFTA eliminates tax paperwork dramatically for drivers, saves time, eliminates accounting errors, and simplifies compliance with fuel tax laws.
Any truck driver registered under the IFTA must send a fuel tax return to his/her base jurisdiction every quarter.
Complete details on reporting requirements list several details, and the quarterly returns are due to be published at the end of each month after being reported.
And if failed to meet the deadline, a late penalty of $50 or 10 percent of the IFTA tax rates owed, whichever is higher, will be imposed.
Which Vehicle Type Qualifies for IFTA?
Under IFTA, not all types of commercial drivers can be approved.
The vehicle driver needs to use a vehicle that is eligible to be licensed under the IFTA Agreement, which requires that a licensed vehicle is used, manufactured or operated for the movement of people or property.
And the vehicle must also satisfy one of the following conditions for size and weight:
- The qualified vehicle ought to have two axles as well as a gross weight of more than 26,000 pounds or 11,797 kg.
- The vehicle comes with three or more axles, no matter what weight.
- When used with a trailer, the vehicle must also have a total combined weight of more than 26,000 pounds or 11,797 kilograms.
Recreational vehicles are not eligible, and also, the farm-plated vehicles have special additional rules. And Registration charges for IFTA can vary from province to state.
After registration, a single license is provided for the company’s eligible vehicles and together with two decals per each vehicle to be placed in a sufficiently visible location on the vehicle.
The decals and licenses are valid from 1 January to 31 December of every year and must, therefore, be renewed annually.
Applications to acquire decals and licenses may be made available online or print out and sent to the IFTA base jurisdiction office.
It is wise to check with your desired base in a Canadian province or U.S. state to know exactly where and how to apply, as there is no centralized application structure.
What is Single-Trip Permits?
Single-trip permits apply for drivers that don’t have the IFTA license but only periodically travel across jurisdictions.
These permits could be obtained from approved agents on a trip-by-trip basis and also allow for travel to many other jurisdictions by licensed vehicles.
And The permits apply to only one vehicle and one trip over a specified period and distance. Certain costs are usually included for these types of licenses beyond the fuel tax.
Are There any IFTA Exemptions?
There are quite a variety of exemptions for vehicles, fuel, and distance allowed for IFTA; however, they vary by jurisdiction.
In some Canadian provinces and U.S states, in particular, government-owned vehicles, recreational vehicles, school buses, farm plated vehicles, and tow trucks, are excluded but not all.
And according to the 2017 list, Biodiesel is also excluded from IFTA. The comprehensive list of exemptions from the IFTA is posted on their site.
Due Dates of IFTA Fuel Tax Reporting
As we mentioned earlier, commercial carriers file a quarterly tax return for all their registered vehicles to their base IFTA jurisdiction.
And these IFTA tax rates return covers the use of motor fuel and the distance traveled across IFTA member jurisdictions.
Even though the commercial carrier has not carried out any operations or used taxable fuel for a given period, a report should be filed. Many ELD devices such as Keep Truckin or Switchboard create automatic IFTA reports.
The deadlines for filing tax returns and making the payment are the last day of April, July, October, and January (or the next business day, if that day falls on a public holiday or weekend.
Is it Possible to Cancel IFTA Licence?
An existing IFTA tax rates license may be revoked. Usually, if the driver has filed the IFTA tax returns every quarter and has paid all accrued taxes and penalties, he may get his license revoked.
When this happens, the driver must no longer operate motor vehicles or instead choose to use single-trip permits.
And also, the driver must destroy all paper licensing and decals in case of revocation, and hold all IFTA tax records for at a minimum of four years.
An IFTA license may be revoked in situations where the filing requirements are therefore not met, or taxes are still not paid.
Generally, an IFTA license is a minimum-cost way to implement the fuel tax reporting requirements for commercial truck and bus drivers.
What are the IFTA penalties for non-compliance?
Penalties are applied for failure to comply or filing IFTA tax rates returns late. Every jurisdiction of the IFTA has its specific regulations; however, most of them follow a framework.
If the driver fails to file a tax return after the due date, or fail to pay the amount due, both California ifta fuel tax rates and New York impose a $50.00 or 10 percent fine.
For instance, Texas extends the regulation to say, “If failing to pay the taxes is due to fraudulent activity, the driver would be subject to a fine of two times the amount of tax owed.”
When you travel to an IFTA jurisdiction without a permit, a fine, a penalty, or a warning may be imposed, based on the laws of the IFTA tax rates per state jurisdiction.
For California, you might get a fine of $100 to $500. For instance, if the driver fails to file a tax return after the due date, or fail to pay the amount due, both New York and IFTA tax rate California impose a $50.00 or 10 percent fine.
Conclusion – What is the Purpose of IFTA Auditing?
All IFTA member jurisdiction is expected to audit 3% of its licensed base annually to ensure compliance and guarantee payment of the required tax.
Although the possibility of an IFTA audit could cause distress among some, however, it serves a significant function.
Though many carriers find it difficult to accept the IFTA audits, however, the audits are meant to ensure carrier compliance and not to generate more revenue.
One way of making compliance with IFTA possible is to maintain the records accurately. Detailed record keeping is beneficial to file your returns on IFTA and Mile Tax.
In the case of an audit, inadequate or inaccurate records will cost a commercial carrier enormous sums of money in interest and penalties, disallowed ifta diesel fuel tax rates, extra miles, or a reduction in MPG.
If the concerned carrier has detailed records, the audit would be more of a verification process than of an audit of records.
If the carrier auditor provides full supporting information, whether manual records or GPS data, then the IFTA tax rates audit appears to get much smoother.