Filing for fuel taxes can be a tedious job, but the International Fuel Tax Agreement (IFTA) simplifies that process. It’s an agreement between the 48 contiguous US states and all 10 Canadian provinces that streamlines the process of fuel reporting for carriers, trucks, and vehicles operating in multiple jurisdictions.
Established in 1983, IFTA smoothens the process of collecting and distributing fuel taxes among participating jurisdictions.
In this article, we’ll delve into the details of IFTA and how you can automate the process of creating IFTA reports with a fleet management software like CalAmp.
Brief history of IFTA
Before IFTA, truckers had to issue a separate fuel permit from each state or province they traveled to. So whenever they entered a new jurisdiction in the US or Canada, they had to make a stop to get a fuel tax permit.
Every state or province had its own procedures, reporting guidelines, filing due dates, and policies. This would make the process of filing fuel taxes complicated, and truckers would often end up wasting a lot of time doing all the paperwork. Plus, there were various compliance issues because every jurisdiction had their own regulations.
IFTA was created to make this process easier. Drivers no longer had to make so many stops and this also resolved the confusion around compliance issues.
Now, all US and Canadian trucking companies have to register with IFTA. Once they receive their license, they have to stick a set of decals issued by the relevant authority on each side of their vehicle. The license allows trucks to move freely within the US and Canada.
How does IFTA work?
Under IFTA, motor carriers are required to register and receive an IFTA license from their base jurisdiction. The base state or province is where your vehicle and business are registered.
If you have vehicles in more than one state or province, you can contact the relevant local office. If you aren't sure, you can search for “IFTA [jurisdiction name] application” and read through the results.
You need to make sure your vehicle meets the requirements for registration (we’ve mentioned them below).
Once you are sure that your vehicle meets the specified requirements, it’s time to apply for a license. If you are registering for multiple vehicles, each vehicle needs a separate application. Most applications happen online.
With your application, you need to have the following information ready:
- Social security number
- Federal Employer Identification (FEI) number for business entities
- License plate number (Vehicle must have an approved International Registration Plan license plate, or apportioned plate that's honored in all states and Canadian provinces)
- United States Department of Transportation (USDOT) number (which authorizes you to haul passengers or cargo for interstate commerce)
- Proof of legal residency
It’s mandatory to renew your licenses every year. IFTA sends you renewal reminders and forms. The license allows you to operate in all member jurisdictions and report their fuel use and mileage for each jurisdiction.
For fuel tax reporting, businesses have to file reports quarterly. You need to pay taxes for all qualified vehicles. Truckers need to pay taxes even if the qualified vehicle wasn't in use for that particular quarter.
Motor carriers are required to keep detailed and accurate records of their gallons purchased and miles driven for each vehicle. This information determines whether you owe any taxes or if you have to be refunded. The IFTA office in your home state issues the debt or the refund.
Here’s how you can calculate total miles and total fuel usage:
Total miles: Total of all miles or kilometers that every qualified vehicle travels during the reporting period.
Total gallons or liters: Total of all gallons or liters of fuel that you fill in the fuel tank for every qualified vehicle during the reporting period.
It’s important that you keep the fuel receipts and invoices. Proof of purchase requires details like number of gallons purchased, date of purchase, fuel type purchased, price per gallon, the seller’s name and address, and purchaser’s name.
Finally, you also need to input details about your vehicle like the truck number, fleet name, fuel type, gross vehicle type, make, model, and trip reports.
The trip reports require the following details:
- Start and end dates of your trip
- Trip origin and destination
- Total distance
- Distance by each jurisdiction traveled
- Routes of travel
- Start and end odometer reading
- Registrant’s name
- Vehicle identification number and fleet number
Qualification for IFTA license
If you operate a qualified motor vehicle in a state or province that's a member of the IFTA agreement, you qualify for an IFTA license.
A motor vehicle is considered qualified if it:
- Has three or more axles; or
- Has two axles and a gross vehicle weight of more than 26,000 pounds or 11,797 kilograms; or
- Weighs 26,000 pounds or 11,797 kilograms in combination of motor vehicles.
If you use a vehicle solely for personal purposes (like a pickup with a camper), then those vehicles aren't qualified for an IFTA license.
Additionally, you must function within the scope of IFTA, have a physical presence in their base jurisdiction, register your qualified motor vehicles, travel a minimum distance in each member jurisdiction during the reporting period, and keep a detailed record of fuel purchases.
Once your IFTA license application is accepted and processed, you'll receive two IFTA decals from your state or provincial IFTA authority.
This is for each licensed vehicle for the current year and you need to glue them to each side of your carrier.
Benefits of registering for IFTA
Interstate motor vehicles that operate in two or more member states or provinces can enjoy the many benefits of IFTA. For example:
- You have to select one IFTA member state or province as a “base jurisdiction” and not work with multiple locations.
- You have to file only one tax return each quarter with the selected base jurisdiction, mentioning your fuel usage and mileage for all IFTA member states and provinces.
- If you have many qualified vehicles, you receive a single fuel tax license for them that you can use to travel in all IFTA jurisdictions.
- You'll have to undergo audits for fuel tax records only by your base jurisdiction.
Places where IFTA credentials are valid
You can find a list of all states and provinces that are IFTA members. Most Canadian provinces and US states are on the list. However, here’s a list of jurisdictions where IFTA doesn’t work:
- Canada: Northwest Territories, Nunavit and Yukon Territory
- United States: Alaska, Hawaii and the District of Columbia
- Mexico: All states and the Federal District
You have to get in touch with the concerned authorities in their jurisdiction for fuel tax reporting, if you wish to travel in locations where IFTA isn’t accepted.
Taxes and types of fuels
IFTA is only for fuel taxes, and doesn’t incorporate weight mileage taxes, road taxes, or other jurisdiction-specific taxes.
The fuel tax agreement also states that you have to keep your tax records for at least four years in case auditors need to access them.
You don’t need to submit any security deposit with your application, but you can attract a security deposit later if:
- You have delayed filing your fuel tax returns
- There’s a tax reporting issue in an audit
You have to report on all fuels that you use — but reporting can be different for different jurisdictions. Some of the types of fuels you can report on are:
- Liquid natural gas (LNG)
- Liquefied petroleum gas (LPG) or Propane
- Dimethyl ether-liquefied petroleum gas blend (DME-LPG blend)
- Kerosene, stove oil, or distillate
- Compressed natural gas (CNG)
- Dimethyl ether (DME)
- Alcohol fuels (i.e., ethanol and methanol)
- Blended alcohol fuels with no more than 15% gasoline or diesel fuel
For fleet owners who have a bulk fuel storage facility, you may get a credit for tax paid on fuel withdrawn. However, you need to have the following information and records with you:
- Fuel type
- Date of withdrawal
- Gallons or liters withdrawn
- Unit number of vehicle in which the fuel was filled
- Purchase invoices and inventory records as proofs showing that tax was paid on your bulk fuel purchases
When are IFTA reporting periods?
The reporting period for IFTA is as follows:
IFTA reports are filed quarterly. If you are filling the returns online, the due amount must be paid by 12am (midnight) on the due date to be considered timely. You’ll get a confirmation once you file the return.
Due date is extended to the next day if the due date falls on a weekend or state holiday.
If you pay the tax late, fail to file the tax, or underpay it, you'll be liable for a penalty of $50 or ten percent of the net tax amount, whichever is greater.
For late taxes, there'll also be an interest payable that's calculated from the date the tax was due for each month or fraction of a month until paid.
IFTA license revocation
State and province jurisdictions can revoke your IFTA license if you don’t:
- Follow IFTA’s provisions and individual state and province’s tax laws and regulations
- File a quarterly fuel tax return
- Pay taxes due to all member jurisdictions
- Pay the amount due on an audit billing or fail to apply for a reconsideration in that stipulated period
- Travel interstate
Mistakes to avoid
To help you be on top of IFTA report creation, here are a few things that you must take care of so that you don’t face any penalties.
- File your taxes on time and in every quarter.
- Don’t forget to record personal miles. If you don’t have them saved, there can be faults in your calculations that can result in discrepancies leading to an audit.
- Calculate fuel and mileage correctly to avoid audits and fines.
- Even if you aren't operating in a particular quarter, it’s compulsory to file an IFTA report.
- Check if your odometer is giving accurate readings. Faulty mileage data can mix up your tax calculations.
Audits happen for 3% of licensees each year, even if you follow all the guidelines perfectly.
The notification of an audit comes via mail or a phone call from your base state’s department of taxation. Your company is notified about the audit at least 30 days prior and you also receive guidelines about the time and date of the audit and types of records that have to be kept ready for the audit.
The auditor assigned for your company may also get in touch with a representative to discuss your company’s operations, audit procedures, scope of audit, and the fuel accounting system.
Audits can result in hefty fines and license suspensions if there’s inaccurate data or late tax filings.
The odds of errors can decrease if you use a telematics solution. Let’s look at what telematics is and how it can help in IFTA reporting.
Telematics and ELDs for IFTA reporting and compliance
Electronic Logging Devices (ELDs) and fleet management software can help solve compliance issues. Here’s how.
Fleet software systems use telematics to collect data like GPS location, speed, fuel consumption, and engine performance from vehicles.
These systems also provide Electronic Logging Devices (ELDs) that are installed in commercial vehicles and automatically record a vehicle’s engine hours, driving time, fuel usage, mileage, and other data necessary to comply with federal laws. This keeps errors to a minimum and simplifies the reporting process.
CalAmp ELD helps with automated IFTA reporting and ensures full compliance with US, Canadian Schedule 1, Ontario, and Quebec regulations.
Our ELD is a tablet that you can mount on your truck or cab. It connects to the vehicle’s engine or to a telematics device that imports data from the carrier’s Engine Control Unit (ECU) to automatically record data. Then, it displays this information clearly to the driver or to the fleet manager.
It has a fully customizable portal and is easy-to-navigate. With ELD, you can easily record data on fuel purchases, fuel usage, and mileage and make sure that you file taxes on time, avoid costly fines, and minimize audit risks.
Plus, you can include all this information in a single report and do away with the hassle of managing multiple documents.
Apart from this, CalAmp also comes with the following features:
- Real-time tracking: CalAmp provides real-time information on the location and status of vehicles.
- Maintenance scheduling system: This feature keeps a track of regular maintenance tasks like oil changes and tire checks so that you don’t face vehicle downtime.
- Driver behavior monitoring: Fleet managers can track driver behaviors like harsh braking, acceleration, speeding, tailgating, and swiveling. This lets managers identify areas of improvement and improve driver and fleet safety.
- Fuel management system: CalAmp tracks fuel efficiency, idle time, and fuel consumption that helps reduce fuel expenses.
- Geofencing: With the Geofencing feature, you can set up virtual geographic boundaries. So when vehicles enter or leave that boundary, the fleet manager gets an alert and can monitor the status of the fleet at all times.
- Integrations: CalAmp integrates with third-party software like dispatch solutions or fuel cards to centralize information.
Streamline your operations and simplify IFTA compliance
IFTA is useful for drivers and fleet operators because:
- It decreases the administrative burden of adhering to multiple fuel tax laws in various jurisdictions.
- It promotes tax fairness and uniformity.
- It simplifies the IFTA reporting process.
- It helps vehicles avoid hefty fines, penalties, and complex legal problems.
Using fleet management software is one of the easiest ways to make your IFTA reporting process hassle-free. Apart from helping you with IFTA reports, it can also optimize routes in real-time, monitor maintenance schedules, send preventive maintenance alerts, and optimize fleet operations.
To find out how CalAmp can help with IFTA compliance and regulation, request a demo.