4 min read

IFTA? What is it? How is it calculated?

The International Fuel Tax Agreement (IFTA) is an agreement among U.S. states and Canadian provinces. There are tax obligations connected with motor vehicle fuel. IFTA permits commercial motor vehicles to register in one state and have tax charges paid out to all participating areas according to their share.

IFTA was developed for truckers whose routes frequently take them across state lines. It simplifies accountancy and the repayment of fuel taxes and alleviates trucking companies of some documentation.

How Does IFTA Work?

Imagine this scenario... a big truck has 200 gallon fuel tanks and about 1,200 mile range. The truck fills up in Texas and then makes a round trip to Kansas City. So it drove through Texas -> Oklahoma -> Kansas -> Oklahoma -> Texas. Well, when the driver bought fuel before leaving Texas he paid state excise tax on purchased fuel, so Texas got all the tax revenue. Then he drove in other states but states didn't get any excise tax revenue. They are still required to maintain their roads. So Oklahoma and Kansas are like "What the h***? We want our tax revenue." - Welcome to IFTA!

So, a truck or fleet is IFTA registered and gets a fuel tax permit from one state. When these trucks buy fuel the tax on fuel purchased is credited to the permit owner's account. At the end of the quarter, a fuel tax report reveals miles driven in each jurisdiction and gallons of fuel purchased in each jurisdiction.

IFTA helps calculate the amount of tax due or tax credit for each state, regulates the tax obligations for each, and manages the circulation of funds accordingly.

In their quarterly IFTA report, the carrier then lists the total miles traveled and gallons of fuel bought in participating areas. Tax liability is calculated by determining the effective gallons of fuel consumed in each state using the fuel economy and number of miles traveled in each state. The liability is then compared with the fuel purchases to determine the amount of tax owed or if a refund is due.

How to Calculate your IFTA?

First, let's gather some data that we'll need:

  • All Fuel Receipts from the report period
  • Record of miles traveled in each jurisdiction
  • The fuel tax rates for the quarter from reach jurisdiction

Step 1: Gathering your fuel receipts

This should be pretty easy if you're using a fleet fuel card. You should just be able to run a report of gallons per state.

If you aren't using a fleet fuel card. I hope your drivers kept up with all their fuel reciepts and you're prepared to do some serious data entry.

Shameless plug: If you don't have a fleet fuel card, reach out to us. We have a great fuel card program that can track your state gallons automatically and comes pre-loaded with some major fuel discounts.

Step 2: Calculating your state miles

If you have an ELD or GPS tracking you should be able to gather this information through a report from that system. Keep in mind that often times these systems make big mistakes in mileage or could just have missing mileage. For example, maybe you rented a truck from Penske and didn't put a GPS in it. Or maybe you had a faulty device and it didn't accurately record your mileage. Watch out for errors here, they will bite you if you get audited.

Shameless plug: We are really good at tracking state miles, in fact we do it for most of the FedEx fleet. So if you need help here, reach out to us

If you don't have a GPS or ELD system, hopefully you had your drivers keep manual trip sheets where they recorded their mileage in each state. If you're using this method, we truly wish you the best of luck in this process and will be praying for you.

Step 3: Gather tax rates

This is the easy part. You can google it, but most likely your state's IFTA addendum will have them listed.

Now we actually do some math...

I strongly recommend that you get all of the above data into excel. I'd recommend something like this:

State Total Miles Purchased Gallons Taxable Gallons Net Taxable Gallons Tax Rate Tax Owed/Refunded

 

You can get my excel template for IFTA here.

Once you fill in the table, you can calculate your fleets total fuel economy by summing your miles per state and dividing by your purchased gallons. So..

Fuel Economy = sum(miles per state) / sum(gallons purchased in each state)

Then, taxable gallons is your miles driven in each state divided by your fleet's average fuel economy. So..

Taxable Gallons = miles in state / Fuel Economy

Next, net taxable gallons is taxable gallon - purchased gallons in each state. Therefore:

Net Taxable Gallons = Taxable Gallons - Purchased Gallons

Finally, tax owed or refunded is:

Tax Owed or Refunded = (Net Taxable Gallon * Tax Rate) - (Purchased Gallons * Tax Rate)
This will result in a negative number for a refund or a positive number for tax owed.

Lastly, sum your tax owed refunded column to obtain your total tax owed or to be refunded.

Validating your data

Obviously, garbage in equals garbage out. So there are a few basic verifications you can do to make sure your data is solid:

  1. Sanity check your fuel economy: If you're running a fleet of dry vans for example and your fuel economy is 1.8mpg or 15mpg then that should tell you something isn't right.
  2. Perform a fuel economy analysis on each truck: This will help you identify trucks that have unusually low fuel economy or high fuel economy. This could be caused by error in your data, maybe your miles or are under or over reported.
  3. Run a fuel exception analysis on each truck: This is really hard to do if you don't have software. But this type of analysis would look for times your trucks purchased fuel in a state at a time when the truck physically wasn't in that state. Obviously, fuel exceptions should raise a red flag in data quality.

Filing your return

Most states have a form that you need to put all information on and submit. In most cases, they want you to file it electronically. It goes without saying but make you don't typo anything. Also, pay attention to any specific rules your state may have. For example, in PA, if your fleet fuel economy is over 6.41 you have to use 6.41mpg.

Pro tip for PA people, if your fleet avereges over 6.41 get an IFTA license in another state.

 

IFTA Audits

You can be audited by IFTA. So you need to maintain all your records for 5 years. IFTA audits are miserable if you don't have software helping you track all of this. In most cases, the auditor will sample your data and attempt to find discrepancies. If they find a discrepancy they will dig deeper.

Pro Tip: Software to do this is very low cost relative to an audit, just do it.

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