If you’re confused by IFTA tax rates and you’re trying to figure out the best way to buy fuel, rest assured that you’re not alone. On many online trucking forums, you can find owner-operators debating the best strategies for buying fuel, and there’s a lot of confusion.
But in reality, buying fuel for trucks is pretty simple. Hopefully this article will get you thinking clearly and correctly about how to buy fuel taking IFTA into account.
IFTA was created to simplify the payment of state fuel taxes. In the old days, trucks had to stop at each state line and report how many miles they’d run and gallons they’d burned in that state, to figure out what they owed in taxes. This was a real pain for everyone: truckers and tax collectors.
With IFTA, the process was simplified so that truckers didn’t have to stop; they could just report their miles run and gallons burned in each state later. So you pay your state taxes at the pump and then you figure out later where you actually burned that fuel.
The way IFTA is set up, states get their taxes for fuel burned in that state no matter where it was bought. So given a set route you’re running, it actually doesn’t matter where you buy that fuel.
For example, in Florida the tax rate on diesel for the 2nd quarter of 2015 was $0.3367. If you used 100 gallons in Florida during that time, you’d be paying $33.67 for fuel burned in that state, no matter where you bought it.
The only difference is that you’ll either be paying at the pump or paying later, when you make your quarterly IFTA payments. But it’s important to realize that it doesn’t matter when you pay those taxes; once you run miles in a state, you’re going to be paying taxes on the gallons burned in that state, one way or another. And it’s important to realize that this is a good thing that saves you a lot of time and effort when compared to the old days.
Having said that, there are differences in base fuel costs. When we say base fuel costs we mean:
Per-gallon pump price minus per-gallon state tax
For one example, in Iowa in the second quarter of 2015, the state fuel tax was $0.33, while the average pump price was $2.76, so the “base rate” would be 2.76 minus .33, which is $2.43.
States can vary between locations and states (based on things like transportation costs and other factors). And costs can vary from station to station. (For example, the diesel at some large chains is more expensive than it is at small stations.)
What this means is that there are ways to save money on buying fuel. But these strategies have nothing to do with paying IFTA taxes.
The simplest and best fuel-buying strategy is the same strategy you’d follow for buying anything. Just figure out where the underlying fuel cost is the cheapest. To do that, you just need to subtract the per-gallon tax rate from the per-gallon pump price.
That’s really all there is to it. Because, as we’ve said, you’re going to have to pay the state fuel taxes on gallons used in those states no matter what (whether at the pump or later). So the only question is: where can I buy fuel cheapest once I take IFTA and taxes out of the equation?
One example: let’s say you were running a route between West Virginia and Virginia, and you wanted to compare fuel costs at pumps in these two states, you’d do this:
West Virginia pump price $2.993/gal – tax rate $0.346/gal = $2.647/gal Virginia pump price $2.791/gal – tax rate $0.202/gal = $2.589/gal based on May 2015 prices and tax rates
So in this example, it’s clear that buying in Virginia saves you some money (about six cents per gallon) and would be the most logical choice. That’s really all there is to it, and that’s all you’d do to compare prices for any state you’re running in. (And of course you could compare specific pump locations within states to find the best deals.)
But wait, you might be saying: Virginia actually has a surcharge, so doesn’t that complicate things? It actually doesn’t, but we’ll talk more about that in a second.
After you understand this pretty basic fuel-buying strategy, the next question is “How much do the real gas prices vary between states?” The answer is “Not much.”
Here’s a quick comparison of a few states, put in order of lowest real price to highest, so you can see the “spread.”
Colorado. Pump: $2.67, Tax: $0.20, Real price: $2.47
North Dakota. Pump: $2.715, Tax: $0.23, Real price: $2.485
Texas. Pump: $2.724, Tax: $0.20, Real price: $2.524
Ohio. Pump: $2.852, Tax: $0.28, Real price: $2.572
West Virginia. Pump: $2.993, Tax: $0.346, Real price: $2.647
Maine. Pump: $2.991, Tax: $0.312, Real price: $2.679
Washington. Pump: $3.136, Tax: $0.375, Real price: $2.761
Nevada. Pump: $3.095, Tax: $0.27, Real price: $2.825
California. Pump: $3.30, Tax: $0.447, Real price: $2.85
There’s around a 40-cent difference in real fuel prices between the cheapest states and the most expensive states, with most states being somewhere in the middle. Most differences between states will be in the 10 to 20 cent price range.
These aren’t huge variations, obviously, but they will add up, especially when you’re running similar routes frequently or if you have multiple trucks in a fleet. The best strategy would be to check out the average state prices in your routes and come up with a general fueling strategy that will get you doing the lion’s share of fueling in the cheapest states.
One other tip: keep in mind how important the savings are you’re trying to get in the big scheme of things. Sometimes these savings will be pretty small. Is it worth it for you to spend a couple hours mapping out a detailed routing strategy for a one-off trip that will save you $20 in fuel and add a few minutes to your trip? Probably not. (After all: time is money.) Is it worth spending that time planning that route for a route you do frequently? Probably so.
So just keep in mind how important the savings are in the big scheme of things and how they impact the time you spend.
There are a few sites for finding current pump prices. Some of these sites have up-to-date average prices for states, and some list specific station prices. Here are a couple of these resources:
Here’s the site with up-to-date information on state fuel tax rates. Just click on the Tax Rates link in the left-side navigation.
There are three states that charge extra surcharges for gallons burned there: Virginia, Kentucky, and Indiana. These surcharges are not charged at the pump: you have to pay them later, when you do your IFTA filing every quarter.
Many people are confused about these surcharges and think that it affects fuel-buying strategy, but it actually doesn’t. This is because the surcharges are levied on gallons burned in those states, not on fuel purchased in those states.
In other words: the fuel surcharges would impact your route strategy, not your fuel-buying strategy. For example, you might choose to minimize the miles you run in Virginia, to avoid surcharges as much as possible. But once you decide on your optimal route, the surcharges should have no effect on your fuel-buying strategy: it’s a separate issue.
(Also, some states have extra mile taxes, for miles run in those states. This is also something that would affect how you choose your route, not how you buy your fuel.)
Another bad fuel-buying strategy we’ve seen is this one:
Some truckers, in order to make it so that they don’t owe IFTA payments later, only buy enough fuel to get them through the state they’re running in. For example, a trucker going through Virginia buys enough fuel when he enters Virginia to get him through the state. By doing this, he ensures that he’s making his fuel tax payments at the pump, and not having to pay them later, at the end of the quarter.
But can you see the mistake in this thinking? As we’ve said, it doesn’t matter when you pay your per-state fuel taxes. One way or another, you’re going to be paying those taxes for miles you’ve run in a state: it doesn’t impact the total amount you pay at all. (There may be better ways to optimize your route and travel fewer miles in states that charge you higher taxes, but that’s a separate issue.)
People who follow strategies like this are, it’s true, paying less later. But they may actually be paying more over time. They may be missing opportunities to fill up their tanks completely in states where the underlying (non-taxed) fuel cost is cheaper. And that’s what the focus should be on. In short, they’re focused on the wrong thing.
A quick example to illustrate this:
A trucker has a route that takes him from the middle of North Carolina and through Virginia and West Virginia. On average, his route has him burning 25 gallons in Virginia and 50 gallons in West Virginia.
Here are the underlying fuel prices (pump price minus tax rate, based on May 2015 info) for these states:
North Carolina: $2.465
West Virginia: $2.647
If this trucker followed the mistaken strategy we’re talking about, of filling up only enough to cover his per-state travel, he’d spend the following on real (non-taxed) fuel traveling through Virginia and West Virginia:
Virginia: 25 gallons x $2.59 = $64.75
West Virginia: 50 gallons x $2.647 = $132.35
If he instead just filled up right before leaving North Carolina and powered through Virginia and West Virginia, he’d pay the following:
$2.465 x 75 gallons = $184.86
So filling up his tank in North Carolina would save him $12.24. Not a huge savings, obviously, but that’s just one truck and one fairly short route. You can imagine how much an impact this would have on longer trips and multiplied by many trips.
But the biggest problem with this buying-enough-for-state-travel strategy is this: focusing on buying only enough fuel to get you through a state means you’ll be wasting a lot of time on stopping and fueling up. And you’ll be wasting time thinking about how to implement this wrong strategy. These are both sources of wasted time, and time is money.
The only way such a strategy of not wanting to pay taxes later would make sense would be if you have low cash flow and need as much money on-hand as possible. Other than that, this strategy is pretty clearly non-optimal. So remember to keep the big picture in mind and stay focused on paying the least, not when you pay it.
Hopefully this article has made IFTA and fuel-buying strategy more clear for you. It’s really a pretty simple when you get down to it. In future articles, we’ll discuss other aspects and strategies related to IFTA and fuel costs.
If you have any questions about this article or want to learn more about how our software, Rigbooks, can help you with your IFTA reporting, send us a message on our Contact Page.
My name is Jason Forrest, and I’m the creator of Rigbooks. Rigbooks is a cloud-based software that makes it easier for managers of small and medium-sized trucking fleets to do their job. We’ve been around since 2010.
A little about me: I grew up in a trucking family and from an early age I learned about the day-to-day problems that truck owner/operators have to deal with. I was into computers and programming as a kid so over the years I helped write small computer programs that helped my parents run their company better. Eventually that led to the idea of putting all those tools together in one package. And Rigbooks was born.
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