International Fuel Tax Association (IFTA)
The International Fuel Tax Association, Inc., is commonly simply referred to as the IFTA, and was formed to manage and administer the International Fuel Tax Agreement. The ‘lower’ 48 or contiguous US States and the 10 Canadian Providences are members and use the IFTA as a means to efficiently collect fuel taxes from motor carriers (trucking and bus companies) that use the highways in their jurisdictions.
The IFTA Mission Statement is: “To foster trust and cooperation among the jurisdictions through efficient and effective planning and coordination and oversight of activities necessary to administer the International Fuel Tax Agreement for the betterment of the members and our partners.”
While the IFTA is based in Arizona, the primary dealings are with the appropriate (revenue collecting) agency in the state where the trucking company is based.
To understand the purpose of the IFTA, you need to understand that each state assesses fuel taxes on fuel (both gasoline and diesel) which is primarily used for road construction and maintenance. There may also be state and local sales taxes figured into the price at the pump. Since each state will have different tax rates – both the sales tax portion and the road fund portion – prices at the pump between two truck stops, one on each side of a stateline between two states may have different prices. Even if the prices are the same, an issue is that if a truck driver fills up 200 gallons in state A, and then drives thru state B, to state C and then finally into state D, they have used the roads in 4 states but paid all the taxes to just one.
Before the establishment of the International Fuel Tax Association, each state collected its own fuel taxes and not all states used the same procedures. States generally established “Ports of Entry” that would issue permits and assure the tax collection. If a trucking company knew it would often be traveling thru multiple states, they might file permits for those states in advance. However, it was still a burdensome process on both the states and especially the trucking companies. A company with only a few trucks might be able to manage the paperwork, but as the company grew to more trucks servicing clients in more states, the paperwork and support requirements were business prohibitive.
Pre-IFTA trucks in inter-state commerce carried a special plate (“Bingo Plates”) upon which each state’s permit sticker was affixed. This system was inefficient and costly for each state to manage.
Post-IFTA, the driver’s purchases fuel as needed or based on company policy. The driver also maintains a daily trip log that keeps track of the mileage in each State (or Providences) by noting the mileage at each state line. The driver will also note miles on toll roads as some toll roads may have a different fuel tax assessment. At the end of each quarter, the company uses purchased fuel information and uses a average fuel mileage (MPG) to calculate the taxes owed to each jurisdiction – regardless of where the fuel was actually purchased. The company then files a single report with their home state. The states, via working with the IFTA, then transfer the balances between themselves as a form of equalization.
It should be noted that it is possible to be owed a refund or owe additional taxes. This can occur if, for example, all fuel is purchased in a state with a low tax and yet a lot of miles are driven in one or more states with higher tax rates. However, if the Fuel is purchased in high tax states but a lot of miles are driven in lower tax rate states, a refund may be owed. The solution to this is to attempt to buy appropriate amounts of fuel in each state (at least with in reason if not to the exact amounts) so that you are paying applicable tax rates. Many new drivers (or even some older ones) that go to work for large trucking companies are often confused by the company’s use of a fuel purchase manager, since often they are told to stop and get limited amounts of fuel at multiple locations rather then one large purchase at a single truck stop. This is because the system is attempting to distribute the purchases across the numerous locations to prevent under or over paying the fuel taxes each quarter.
Three states [Kentucky, New Mexico, and New York] have a “weight-mile” tax in addition to the standard fuel tax. Oregon uses a weight-mile tax calculation.
The IFTA addresses the issue of payment of fuel taxes to the appropriate jurisdictions while the International Registration Plan or IRP address issues related to the vehicle registration and thus permission to even be operated on the highways of each state.
There are a lot of theories on how to reduce your IFTA bill, but none of them legally. If you drive miles in a state you are expected to report that mileage and you will owe that amount. The only way to owe less is to report fewer miles, but in the event you are caught cheating, the fines and penalties will eat up a lot more then the savings.
For owner-operators [O/Os] one area that could cost them money is if the leasing company uses a fleet average to figure average MPG as opposed to a truck average. Some truckers drive more efficiently then others and many O/Os like to driver newer, more efficient trucks. The result could be that the O/Os are assessed a lower MPG meaning they could pay more IFTA while the less efficient trucks/drivers benefit from the owner/operators higher averages.