Previously, we described the International Fuel Tax Agreement (IFTA) in very simple terms—that it was created to simplify fuel-use reporting between Canada and the United States. It is, of course, more involved than that. It is an agreement between Canadian Provinces and the lower 48 United States to encourage a more efficient and uniform way of overseeing fuel-use taxes across the member jurisdictions. It also works on a pay no or pay later system.
So when any given commercial motor vehicle buys fuel, they pay a tax on that fuel. Any taxes paid goes into that licensee’s account. At the end of the current fiscal quarter, they fill out a fuel tax report on which they list all the miles traveled in all the participating states or provinces, and all the gallons of fuel purchased in those states or provinces. Then they figure the average fuel mileage, and apply that to the miles traveled in each jurisdiction to determine exactly how much of the fuel tax that jurisdiction gets for that licensee, or if that jurisdiction owes a refund.
Once calculated, fuel tax amounts (or any refunds due) are paid to or by the base jurisdiction that issued the license. Each jurisdiction is responsible for actually transferring the funds appropriately. The base state or jurisdiction is responsible for its own audits.
There are four states (New York, Kentucky, New Mexico and Oregon), however, that have a weight-mile tax on top of the regular fuel tax.
Who participates in IFTA?
The members for IFTA include the lower 48 states of the United States, and the Canadian Provinces. Alaska, Hawaii and the Canadian Territories, however, do not. Each participating jurisdiction (which is to say, every state or province) has a different rate, and we’ll get into those details a little later.
Not every driver has to worry about IFTA, though. There are some exceptions for recreational vehicles including motor homes or pickup trucks with an attached camper trailer, or buses that are used by an individual for personal pleasure. Some states also have exemptions for government trucks, and those used exclusively for farm use.
No, what we are more interested in for our purposes are those vehicles that are used, designed or maintained for transporting either peoples or goods. They also have to meet other criteria. If a vehicle has just two axles, they must have a gross vehicle weight rating or registered gross vehicle weight that is more than 26,000 pounds. If one has three or more axles, or it is used in combination so that the weight exceeds 26,000 pounds for the gross vehicle or registered gross vehicle weight, then IFTA reporting is mandatory.
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More resources for trucking business owners:
- What’s the difference between HVUT, Form 2290, and IFTA?
- "How long do I have to keep these?": FMCSA record retention for owner-operators and small fleet owners
- Top tax filing tips for owner-operators
- Tips for owner-operators with tax problems
- How are fuel surcharges calculated?
- Starting out with an owner-operator trucking business
- Owner-operator expenses: Fixed costs vs variable costs
- Understanding owner-operator expenses and costs
- Gaining half an MPG can put more money in your pocket than adding $90,000 in revenue
- Cutting fuel costs and improving fuel efficiency for Owner Operators
- Top truck-buying tips for owner-operators
- New versus used truck pros and cons table
- Buying a truck: Should you get a new or used rig?
- Preventative maintenance strategies to avoid major repair costs
- IFTA fuel-buying strategies: Where is the best place to buy fuel?
- Calculating your cost per mile
- Owner Operator Expenses - Fixed Costs vs Variable Costs
- How do I calculate IFTA
- How does IFTA work?
- How did IFTA start?
- What exactly is IFTA?
- Tracking miles for IFTA
- Fitness for the road
- Acronym cheatsheet for the trucking industry