What does IFTA stand for? The IFTA is the International Fuel Tax Agreement. IFTA is intended to streamline what used to be a cumbersome licensing process. But even though the agreement has increased the uniformity of rules and saved trucking fleets lots of money, it can still be confusing for those unfamiliar with IFTA registration. Keep reading for an explanation, including the steps you may need to take to ensure compliance.
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
International Fuel Tax Agreement explained
IFTA provides a straightforward avenue for participating American states and Canadian provinces to get compensation from trucking fleets that use their roads.
Carriers are required to report their fuel usage to their home state or province, which then collects appropriate fuel taxes and hands over the funds due to the other states or provinces the fleet drove through.
What is the purpose of IFTA?
Before the advent of IFTA registration, every state and province had its own fuel permitting system. Trucks would need to seek out a permitting office, fill out the requisite paperwork, and wait for it to be properly filed.
This system wasted fuel, time, and resources, plus the rules were different for every location, so there couldn’t be a reasonable expectation of just how much time it could take.
Thanks to IFTA, the process was consolidated to make fuel permitting much faster, saving fuel and administrative costs, and eliminating confusing and even contradictory rules.
Who needs to file IFTA?
In the U.S., every state must file except for these three:
- Hawaii
- Alaska
- District of Columbia
In Canada, the following provinces are also required to file:
- Alberta
- British Columbia
- Manitoba
- New Brunswick
- Newfoundland
- Nova Scotia
- Ontario
- Prince Edward Island
- Quebec
- Saskatchewan
Forty-eight U.S. states and 10 Canadian provinces are member jurisdictions with IFTA. If your company only operates motor vehicles in a single jurisdiction and never crosses into another one, then you won’t have to register.
For vehicles that do operate in two jurisdictions or more and are designed, used, or maintained to transport people or goods, there are thresholds these vehicles must meet in order to fall under IFTA regulation:
- Two axles
- Registered gross vehicle weight is more than 26,000 pounds or 11,797 kilograms
- Three or more axles
- Any vehicle exceeding 26,000 pounds or 11,797 kilograms
If a vehicle normally weighs less than 26,000 pounds or 11,797 kilograms but exceeds that weight when carrying cargo, it will be subjected to IFTA registration.
How often do you file IFTA?
Thankfully, you don’t have to go researching “when is IFTA due” as if it changes constantly. There are only four due dates per year:
- January-March (Quarter 1): April 30
- April-June (Quarter 2): July 31
- July-September (Quarter 3): October 31
- October-December (Quarter 4): January 31
There are late penalties for missing the IFTA quarter deadlines, too. We’ll go over the actual calculations below, but for now, let’s look at how to file:
Step 1: Find your state/province’s IFTA website
Each state and province has its own website for filing, which you can find with a quick internet search.
Step 2: Create your IFTA Account
Before you can file, you’ll need to create an account. You’ll also be able to take care of any license information or issues and get decals.
Step 3: Provide Information
The application will have fields for all of the information you’ll need to enter the following information:
- Total mileage in each jurisdiction
- Location of purchased fuel
- Cost of purchased fuel
Once you’ve entered your info, you’ll either have a credit, or you’ll owe some taxes.
Step 4: Pay taxes
If you owe taxes, your state’s online portal will let you take care of that. Reporting may be automatic if you’re using digital load boards or telematics software.
Because these types of software track exact mileage and location, most have a built-in ability to calculate and report IFTA taxes. Also, if you’re using a factoring company, they will probably offer free IFTA reporting.
Are IFTA taxes deductible?
Because the IRS deducts work-related expenses, and the IFTA taxes are most likely being paid because of work-related fuel usage, it pays to deduct these taxes.
IFTA tax calculations in 5 steps
To figure out exactly how much you owe, follow these five steps.
Step 1: Track miles traveled
Record the miles that your fleet has traveled in each state or province. Drivers will need to keep accurate Records of Duty Status by logging their odometer readings when going across state or provincial borders. If you use fleet managing software, your drivers may be exempt.
Step 2: Determine sum of fuel purchased
You’ll need receipts for this step to prove how much fuel your fleet actually bought. The information you must have is the date, name of the seller, location of seller, type of fuel, truck plate number, gallons bought, price of fuel per gallon, and name of the driver.
Step 3: Determine fuel used in each state or province
Here’s the formula for finding the information for this step:
Miles Driven ÷ Gallons Used = Fuel Mileage
The next formula will help you figure out how much fuel was used in a given state or province:
Miles Driven in Jurisdiction ÷ Miles Per Gallon = Fuel Used in Jurisdiction
Let’s say the truck drove 500 miles in a particular jurisdiction. The calculation would be:
500 ÷ 5 = 100 gallons
Repeat for each truck and jurisdiction.
Step 4: Calculate taxes
This step is where your IFTA calculator software will come in handy. The rate you’ll pay per state or province depends on the quarter. IFTA’s website features a chart that gives current rates.
Step 5: Final figures and payment
To calculate exactly what you owe each state or province, use the following formula:
State or Province Fuel Tax Required – State or Province Fuel Tax Paid = Tax Owed
All that’s left to do is to pay!
IFTA special reminders
Proper IFTA reporting takes some planning ahead. Make sure you take the following into consideration early, so you do not have to scramble when it comes time to report.
Tracking miles
Tracking miles manually is inexact and leaves you open to either under or over-reporting your mileage. Using telematics software that tracks exact mileage avoids this, as does using a fuel card for payments.
International use
Just because your fleet pays IFTA registration doesn’t mean your drivers can cross the border as they please. Your drivers will have to get clearance to work across the border, your drivers will have to have their passports, and your vehicles and loads will have to be approved for travel into Canada.
To drive through Ontario, you’ll need a Commercial Vehicle Operator Registration (CVOR), and in Quebec, you’ll need a Registration Identification Number (RIN).
Penalties
If you don’t file on time, you’re going to face late penalties, which are either $50 or 10% of your delinquent taxes, depending on which amount is greater.
Automated reporting
Many issues can be avoided by using telematics and other tracking software. Because telematics relies on GPS tracking to see exactly where your trucks are and how far they’ve traveled, the software can automatically compile and report this information, so you don’t even have to think about it.
These programs often come with an IFTA calculator, too. Because penalties and fees are levied most often when filing is late or inaccurate, telematics removes these possibilities.
IFTA vs opting out
Remember that if you are required to file with IFTA, you still have to, even if your fleet hasn’t traveled out of your jurisdiction during a reporting period. Also, if you qualify for IFTA licensing but choose not to take part, you can obtain specific permits for the locations where you need to travel.
If, say, your routes only seldom take you out of a single jurisdiction, you may find that obtaining permits as needed is a more economical route.
Your state may have rules that go further than the federal guidelines. Florida, for instance, does not require IFTA registration on government-owned vehicles, but this may not be the case for your state.
IFTA: Easier and harder
If you’ve been asking yourself the question, “What is IFTA in trucking?” you hopefully found the answer in today’s article. IFTA saves money for trucking fleets, but the rules can be complex. When in doubt, check with your jurisdiction!
FAQ
IFTA exists to simplify the reporting and payment of fuel taxes for interstate motor carriers. It standardizes the administrative processes so carriers don’t have to file tax returns with each jurisdiction they operate in.
No, local trucks that operate solely within one state do not need IFTA licensing or reporting. IFTA applies only to qualified motor vehicles traveling interstate across member jurisdictions.
The non IFTA jurisdictions are Alaska, Hawaii, and the District of Columbia. These jurisdictions have not joined the cooperative IFTA program for fuel tax agreements.
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