Understanding Fuel Taxes and the IFTA

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For many new drivers, as well as our experienced owner operators, understanding the International Fuel Tax Agreement (IFTA) is something most leave for the accountants and fleet managers.  For some the International Fuel Tax Agreement is just another hand in their wallet. Drivers who understand the history and purpose of the IFTA can make better informed decisions that can lead to savings and increased profits.

History

Prior to the IFTA drivers were required to purchase a fuel permit from each state in which they traveled.  This required drivers and carriers to stop and purchase permits at ports of entry. This caused lost time and additional route miles to travel to purchasing centers. Beginning in the 1980’s, officials from from Arizona, Iowa and Washington decided on an agreement for one permit. Over the next 15 years almost all of the lower 48 and 10 Canadian Provinces joined the Agreement.  The idea was to have one permit and taxes would be assessed by one authority and distributed to states and localities based upon the number of miles driven in each jurisdiction.

IFTA Infographic

How Does the International Fuel Tax Agreement Work?

Many people often question IFTA.  What is it and how does it work? The IFTA is an international agreement. The agreement and the day to day operations of collecting fuel taxes and distributing them is done by the International Fuel Tax Association. A non profit organization who helped create the agreement.  Drivers each and every day question why they pay so much in fuel taxes and how that fuel tax is calculated. The International Fuel Tax Agreement ( IFTA) was created to simplify the reporting of fuel used by trucks operating in multiple states. The IFTA mission:

“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.”

For some, including drivers, carries and political jurisdictions, it has become more efficient. However, without a good understanding of how the agreement works, additional costs can be incurred. The process may be more convenient but can still be confusing. In short the rule is that taxes are paid at the pump and dispersed to each state.  The taxes are distributed based on miles driven in that state. A driver may fuel up and pay tax in Oklahoma and then drive into Texas. Texas will receive the taxes from the Oklahoma purchase for each mile driven in their great state.  Fuel taxes paid at the pump for fuel in Pennsylvania used to carry a driver through West Virginia, Ohio and into Indiana, will be distributed to those states by the IFTA.   Issuing one fuel tax license that covers all the states that you operate in means you no longer have to purchase multiple permits for multi state travel.

Fuel Tax Confusion

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. Tweet This!

One of the most common issues regarding IFTA confusion is caused by differing tax rates state to state. As you can see in the graphic, the rates vary from  Oklahoma’s 38.4 cents per gallon to Connecticut’s 79.3 cents per gallon.  Indiana, Kentucky and Virginia have what is called a fuel “surcharge”. The surcharge allows the state to keep a portion of the money in state, no matter where the fuel is used.

Regarding “surcharge” states: The best advice is to only purchase the amount of fuel you plan on burning in these states.  Buying a full tank of diesel as you are leaving the state will cost a driver money since a portion isn’t credited to your travel outside that state.

Oregon is the Exception

The State of Oregon never entered into the IFTA agreement. Taxes in Oregon are not charged at the pumps. While this may sound like a way to save money, it is not. Any fuel bought in Oregon that leaves the state is charged the tax rate of the state where the fuel is burned. Like the “surcharge” states, it is most economical to buy only the fuel you need to run in Oregon.

International Fuel Tax Reporting

IFTA reports are calculated by quarter and money owed or money credited will be due. If you purchase fuel in a low cost state, and run that fuel in a high tax state, you may owe taxes at the end of the quarter. Inversely, if you purchase in a high rate state like Connecticut and run that diesel in a low rate region like Vermont, Maine and Massachusetts, you may see a credit at the end of the quarter.

The IFTA program may seem confusing at first, but this system is more efficient and effective in tracking fuel taxes. Owner Operators that are leased with a carrier operates under that carrier’s IFTA agreement. In this case the carrier is responsible for the filing of the IFTA returns each quarter and paying any liabilities.Owner operators will likely see these taxes debited from their O/O settlement.

Paramount Freight: Working for Drivers

Paramount Freight Systems, like other carriers, utilize software to make sure that all miles and fuel calculations are accurate. This safeguards both the Owner Operator and the carrier. PFS reviews each tax filing every quarter to insure that every gallon and each mile is correctly reported.  We work hard to prevent any of our Owner Operators from being overcharged.

Our fleet managers are always auditing fuel usage looking for ways to make our drivers more efficient. Sometimes this is done by suggesting a different fueling schedule. This prevents large liabilities or excessive refunds each quarter by keeping money in our drivers pockets.  Our team is ready to help any owner operator find efficient ways to purchase fuel on the road. Contact us here if we can help!  For more owner operator tips on the road, follow us on Twitter and Like us on Facebook.


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About Paramount Freight Systems

Providing a service that helps our customers achieve a competitive advantage in their particular industries in how we define customer satisfaction at Paramount Freight Systems. Each member of our team is committed in understanding our customers' standards of excellence. By partnering with our customers to deliver the highest quality service available today, PFS has developed the flexibility and versatility to specifically direct our resources into markets that will best benefit our customers.


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