What is IFTA? How Does the IFTA Tax Work? - International Fuel Tax Agreement FAQs
IFTA or International Fuel Tax Agreement is an agreement between 48 American states and 10 Canadian provinces that makes it easier for transport companies traveling through different states/provinces to report and pay their IFTA fuel taxes.Taxes are paid on motor fuels, and IFTA allows commercial motor carriers to register in one state and have these tax assessments paid out to all participating areas according to their fair share.
Alaska, Hawaii, and the Canadian territories are not part of the agreement.
Historically, motor fuel taxes have funded transportation. Prior to the IFTA program, drivers had to obtain a permit for every state or province they crossed, available at a designated port of entry. Acquiring a number of permits and maintaining the quarterly filings added a significant amount of work to interstate truck trips.
In the 1980s, some states entered into agreements to set up a joint revenue distribution program and eliminate the requirement for individual fuel tax permits. Over the years this program evolved into IFTA today.
Under the IFTA agreement, qualified motor carriers can obtain an IFTA license for their motor vehicles allowing them to travel through other IFTA jurisdictions and submit only one quarterly fuel tax return in their base jurisdiction for fuel usage.
If motor carriers aren’t registered with IFTA, they must comply with the fuel tax reporting guidelines of each individual jurisdiction in which they travel, which may include purchasing fuel trip permits. IFTA is an important part of fleet compliance, in addition to the ELD mandate and Hours of Service management.
IFTA’s main purpose is to simplify the process and reduce the paperwork involved for fuel tax reporting. After registering, you will receive a license with two decals for each commercial motor vehicle (CMV) you operate.
IFTA advantages for transport companies:
- One annual fuel tax licence authorizing the vehicle to travel to all IFTA jurisdictions.
- File a single quarterly tax return with your base jurisdiction. This tax return will cover your operations/travel to jurisdictions.
- Base jurisdiction conducts comprehensive audits on behalf of other jurisdictions.
Under this program, a truck is IFTA registered and obtains a fuel tax permit from one state. When the vehicle drives through any participating state or province, the tax on fuel purchased there is credited to the permit owner’s account. At the end of the quarter a fuel tax report is completed that shows miles traveled and gallons of fuel for each region.
By requiring commercial carriers to pay fuel taxes proportionally, according to the miles driven in each state or province, the agreement ensures that each jurisdiction has its fair share of revenue to put towards roads and transportation.
Under IFTA, commercial carriers must keep detailed records on miles driven, fuel purchased, and fuel tax paid in each state or province that their vehicles travel in.
Rules to follow:
- Display the IFTA decals on both sides of your truck cab.
- Renew your IFTA license and decals on time.
- IFTA license and decals are valid for one year from January 1st to December 31st.
- All registered trucks require a photocopy of your IFTA license at all times. (in cab)
- File your IFTA tax return and pay any fuel taxes due on time.
Carriers submit these records to their base jurisdiction on a quarterly basis for review. The base jurisdiction determines whether they owe taxes or will receive a credit. Since the allocation of taxes is such a huge and complex undertaking, IFTA, along with the International Registration Plan (IRP), oversee the process and provide assistance and guidance to states and provinces on running their individual programs.
- Carrier submits an IFTA license application in the base jurisdiction.
- Base jurisdiction reviews and processes the license application.
- Carrier receives IFTA license and two decals for each qualified vehicle. A copy of the license must be placed in the vehicle during operation.
- At the end of each quarter, the licensed carrier files a quarterly IFTA tax return to the base jurisdiction for fuel used and remit any amounts due.
- Review and processing of the IFTA tax return by the base jurisdiction.
- A transmittal report is sent by the base jurisdiction to the other jurisdictions in which the vehicle operated in.
- Base jurisdiction processes all transmittal reports and payments from other states
- Business pays base jurisdiction what is owed, base jurisdiction pays other jurisdictions what they owe and collects from other jurisdictions what is owed to them.
Records upon which the quarterly tax return is based must be preserved for four (4) years from the tax return due date or filing date, whichever is later, plus any time period included as a result of waivers or jeopardy assessments.
There are a number of vehicle, fuel, and distance exemptions allowed for IFTA, but they vary by jurisdiction. For example, recreational vehicles, farm plated vehicles, school buses, tow trucks, and government-owned vehicles are exempt in some states and provinces but not all. Biodiesel is also exempt from IFTA according to the 2017 list. The full list of IFTA exemptions is posted on the International Fuel Tax Association website.
IFTA Reporting Periods
Return Due Dates
1st Quarter — January to March
2nd Quarter — April to June
3rd Quarter — July to September
4th Quarter — October to December
In addition to submitting tax returns, license holders must also keep detailed records of distance traveled, motor fuel purchased and used, any trip permits, monthly/quarterly summaries, and Individual Vehicle Distance Records (IVDRs).
IRP, or International Registration Plan, follows the same premise as IFTA but with licence plates. Under IRP, a carrier is issued one set of license plates (prorate plates) and one cab card for each CMV. Like IFTA, IRP consolidates licensing and reporting requirements through the base state/province.
Penalties apply for failing to comply or filing late. Each IFTA jurisdiction has their own specific rules, but most follow a framework. For example, both California and New York assess a $50.00 or 10% penalty if you fail to file your return, file after the due date, or fail to be the amount due. However, Texas expands the rule to say, “If your failure to pay the taxes is due to fraud, you will be subject to a penalty of two times the amount of tax due.”
If you travel to an IFTA jurisdiction without a permit, you may be assessed a penalty, fine, or citation — depending on the jurisdiction’s laws. In California, you could be given a $100 to $500 penalty.
How Telematics Automates IFTA Reporting
Carriers can streamline the process of IFTA management by using a telematics solution to report on accurate GPS location and time in each location of fleet vehicles. Keep in mind that relying on paper records for IFTA can lead to a number of issues such as missing paperwork, entry error, late filings, overpayments, or audits.
Using telematics, or GPS fleet tracking, to track miles by state or province eliminates the manual process, improves the accuracy of distance, and saves time. Wireless Links’ solutions automatically track mileage for each vehicle per state, with breakdown of toll road usage, and fuel purchased in each state, along with the vehicle odometer and GPS position. The Wireless Links Fleet.Net fleet management platform even generates an automated IFTA report, which can then be sent to a third-party to generate the completed tax forms.
To see how Wireless Links can help automate IFTA reporting, arrange a free demo with one of our account executives.