Understanding IFTA reporting is important for all drivers and owner-operators. But what does IFTA stand for? IFTA stands for International Fuel Tax Agreements, and its intended purpose is to save fleets money, although it can be confusing.
The IFTA is a pact between the contiguous U.S. and 10 Canadian provinces. Before IFTA, trucks had to have purchased a fuel permit for every state they operated in, which was a hassle and a lot of paperwork. The process cuts down on the paperwork and minimizes compliance requirements.
Learn more about IFTA reporting and how it allocates taxes by reading below. And when you’re finished, check out the other articles in our ‘IFTA reports’ series:
- What is IFTA?
- Understanding IFTA reporting and common mistakes
- How to calculate an IFTA quarterly tax report
- Best fuel cards to streamline IFTA reports
How does IFTA reporting work?
Every operator of a motor vehicle is required to submit an IFTA application. At the very least, they must have someone do so on their behalf, like an accountant or office manager.
Once you submit your application, you’ll receive an IFTA license and decal for each vehicle that you operate. After you’ve received your IFTA license, when fuel is purchased that amount is logged into your IFTA account.
Each quarter you’re required to submit an IFTA report that lists the gallons purchased and the miles driven. Based on the location you purchased the gas and where the fuel was utilized, the report will help you determine if you still owe tax money or if you are due a refund.
So, how does IFTA work exactly? Drivers pay taxes at the pump, which are then dispersed to each state. The taxes are calculated and distributed based on the miles that the vehicle is driven in each state.
For example, if a driver fuels up in Colorado and travels to Kansas, Kansas will receive a portion of the taxes from the Colorado fuel purchase based on the miles driven in the state. If a driver purchases fuel in a state with a low tax rate and drives into a high tax rate state, they will most likely owe taxes at the end of the quarter.
Alternately, if they purchase fuel in a state with a high fuel rate and they drive into a state with a low rate, they will likely receive a credit at the end of the quarter.
Tips for IFTA reporting
In order to be successful with your IFTA reporting, consider the following tips that can help you better understand the process.
Registering a base state
The transportation industry ships goods and cargo all over the country. Because many of the companies that operate trucks transport across the country as a whole or simply to a specific geographical region, it can be difficult to determine which state to register as your base.
The IFTA has no set standards for a registered base. You should contact your local register in the state where your business is located to get started.
Qualified vehicles and fuels
In order to be required to meet IFTA reporting requirements, the motor vehicle must meet at least one the following:
- Weigh over 26,000 pounds
- Have three or more axles on the power unit
- Carry at least 20+ passengers
Each of the vehicles listed above must use propane, natural gas, or diesel to meet the proper reporting and licensing requirements, but some jurisdictions are now requiring gas-powered vehicles to also be licensed.
Applications
As a carrier, you are required to apply for an annual license. The IFTA will send you renewal applications every year. After your application is approved, you’ll receive two decals to validate your IFTA license that are to be placed on your vehicle’s door.
In the event that you add a new vehicle to your fleet, you must contact your local department of motor vehicles (DMV) to start an application for the new vehicle’s IFTA license.
Fuel tax reporting
You are required to report your fuel tax quarterly, which means four times a year. This report should cover all of your qualified vehicles.
If you owe money on the quarterly reporting, you will need to submit taxes to your Secretary of State. If you are owed a refund, the tax credit will typically be given to you to cover future payments but you can usually request to receive a refund check instead.
Receipts
You are required to submit receipt information for fuel purchases. The receipts must include the following information:
- Date of purchase
- Fuel type
- Seller’s name
- Seller’s address
- Purchaser’s name
- Vehicle registration number
- Total amount of the sale
- Number of gallons purchased
Consider having a fuel card that can help keep track of these expenses for you.
Records
Along with keeping your receipts, you’ll also need to keep records of your vehicle mileage. These reports can be summarized monthly and must include information on the fuel bought at each service station.
IFTA requirements
Every vehicle that belongs to you as a motor carrier is required to apply for or renew an annual IFTA license. The following information is what is required when you apply.
- Proof of residency: You must provide proof of a physical address in your state of residence. This can include a lease or mortgage statement. You are also required to show proof that you filed income taxes the previous three years with the Department of Revenue.
- License plate: Unless you’re utilizing a farm or transporter plate, you’ll be required to have an International Registration Plan license plate.
- DOT number: If you are driving for a company or for someone else, you’ll be required to provide a copy of your Registrant DOT number and your DOT authority lease.
- Owner-operator information: You will also need to provide the names and Social Security Numbers of each owner-operator.
Avoid these 4 common IFTA reporting mistakes
While the IFTA reporting process was intended to make things smoother for the transportation industry, it does have the potential to have fines and penalties associated with it. Drivers can face those issues along with being audited if there are IFTA reporting errors.
Estimating fuel calculations
You may think that you can estimate your fleet’s average number of miles per gallon and the average number of miles traveled. However, estimating such important details can be a very costly mistake.
In order to stay in compliance with IFTA regulations and to receive refunds or tax credits, you will need to have all of your receipts, as well as the number of miles traveled, documented. If you don’t accurately account for these details and you choose to estimate your fuel instead, you might find yourself being audited.
Not recording personal miles
Another IFTA requirement is that you record all of the miles you’ve driven, including your personal mileage. Make sure you are reporting every mile that you drive, which includes the mileage put towards personal errands, loading, and unloading. The mileage gaps will raise a red flag in your driving trips if every mile is not recorded, even for personal use.
Odometer or GPS issues
As previously stated, your IFTA reporting must be accurate. This means that if there is anything that impacts the accuracy of your vehicle mileage, you need to record it. If your vehicle’s GPS or odometer malfunctions, be sure to flag it when you file since it can affect your report.
Filing late
One of the biggest mistakes that you can make with your IFTA reporting is not submitting the report on time, meaning you’ve filed it too late. There are dates outlined by the IFTA officials that require your quarterly filings to be submitted by a certain date.
These dates are April 30, July 31, Oct. 31, and Jan. 31. If you do not file by these timelines, you’ll run the risk of being fined, so it’s best to stay organized and on top of your filings.
Understanding IFTA reporting to help you save
There are numerous tools that you can use as a way of helping yourself stay compliant with IFTA reports. AtoB cardholders receive access to an online dashboard that helps with effective expense management where you can create reports to file your IFTA in just a few clicks.
Staying on top of your quarterly reports can help you ensure that you’re not going to be fined or audited as long as you’re following the guidelines set out by the IFTA. But if you’re ever unsure, don’t forget about your resources, like an advanced fuel card, accountant, or bookkeeper. These resources can help you stay organized and compliant whenever necessary.
FAQ
The International Fuel Tax Agreement (IFTA) is an arrangement between the contiguous U.S. and the 10 Canadian provinces that allow motor carriers to register their fuel usage in one state. It also permits them to have tax assessments paid to the areas in which they drive, according to their fair share. Carriers no longer have to register for every state or providence that they drive in throughout the year.
An IFTA audit will be required if there is an estimated tax reporting, bad or insufficient GPS data, and various other common issues. During the audit, an IFTA representative will look over your fuel receipts and mileage records as a way of addressing problems within your quarterly report.
In order to calculate how much tax you will need to pay per gallon, you’ll need to look at the federal tax rate, including excise taxes and Leaking Underground Storage Tank fees. You’ll then need to add the value of the state tax, which includes excise taxes, special taxes, inspection fees, and environmental taxes, along with any applicable county taxes or local taxes. As such, the tax rate will vary state by state.
