Calculate IFTA Tax: Tips & Best Practices

This is provided for informational purposes, it is not intended to provide legal opinion or tax advice. Please consult with your tax advisor on IFTA reporting.

Being a fleet manager requires more than just maintaining driver schedules and keeping vehicles ready for the road. To be successful, supervisors must keep up-to-date on insurance, operating costs, maintain regulatory compliance, and taxes.

While we can all agree that taxes are a necessary part of maintaining our roads, bridges, and infrastructure, they can also be confusing and cumbersome.

The International Fuel Tax Agreement (IFTA) tax for trucks, requires managers to successfully calculate IFTA tax and accurately understand how to fill out and file quarterly IFTA taxes and forms. As fuel costs are an important part of any fleet’s budget, falling behind on this important expenditure can create big problems.

To gain a better understanding of how to calculate IFTA tax and file the appropriate paperwork for taxable miles, let’s start with the basics.

What is IFTA Fuel Tax Reporting and Who Does it Apply to?

IFTA applies to any trucking company that operates in the U.S. or Canada. It’s an agreement that covers the 48 contiguous U.S. states and the 10 Canadian provinces that dictates carriers pay what is called a fuel consumption tax.

Background on IFTA

 IFTA was created to provide an easier way for trucking companies to submit fuel taxes. It operates as a standalone entity to help fleets understand the intricacies of how to do and file IFTA taxes.

Before its creation, fleet drivers were required to stop for a fuel tax permit whenever they entered a new U.S. state or Canadian province. Regulators soon realized that this cumbersome process was not only cutting into drive times but also creating compliance issues because different jurisdictions had completely different regulations. To combat the confusion, the U.S. and Canada created IFTA to help simplify the process of compliance.

Since its inception, all U.S. and Canadian trucking companies must register with IFTA. From there, a license is issued, along with a set of decals that must be visible on the vehicle, one on each side of the cab.

With this license, trucks can travel freely within the U.S. and Canada without the need to stop for an individual fuel tax permit in every state or province. NOTE: IFTA costs and registration can be affected by things such as vehicle weight and jurisdiction.

How to Calculate IFTA Tax: Fuel Tax Reporting

To remain compliant and understand how to file quarterly IFTA taxes, companies must begin by creating a process on how to accurately record the amount of fuel consumed in different jurisdictions along their trucking routes. In addition, they must educate drivers on how to record their odometer readings whenever they cross U.S. state or Canadian province lines. In some cases, there is fleet management software that can help companies make calculating IFTA tax quicker and easier.

Next, it’s necessary to calculate the total number of gallons of fuel that was purchased in each state, province, or jurisdiction. NOTE: It’s important to remember that drivers/carriers must retain all original receipts and/or invoices to prove that upfront fuel taxes were paid during purchases.

Information like the fuel purchase date, type of fuel purchased, price per gallon, driver’s name, and vehicle license plate number are necessary components that will be needed when completing IFTA forms. 

1. Calculating IFTA Taxable Miles by State

To begin, gather records of total miles driven and fuel amounts purchased in each jurisdiction where your fleet vehicles traveled. The formula is rather simple from this point. Simply divide the total miles driven by total gallons to obtain the overall fuel mileage. NOTE: You can round off the miles per gallon to two decimal points.

Next, to calculate the number of gallons consumed in each jurisdiction, state, or province, put your overall fuel mileage calculation from above into the formula below where X represents the state or province being calculated.

Total Miles Driven in Each State/Province X ÷ Overall Fuel Mileage = Fuel Consumed in Each State/Province X

NOTE: If any driver crossed state or province lines in the course of their trip, it will be necessary to repeat this step for each affected jurisdiction.

2. Taxes Owed by State and Province

The next step in the process requires calculating the IFTA tax amount your fleet owes for each quarter by state/province. This step includes using the applicable rates that have been calculated by IFTA. The correct quarterly tax rate for each state and province can be found here.

NOTE: Keep in mind that the IFTA tax rates shown in the chart are updated quarterly so it’s important to always reference the latest set of numbers before calculating and submitting your IFTA forms and taxes.

3. How to Do Your IFTA

Finally, to complete the process on how to do and file IFTA taxes owed by state or province, simply use the following formula:

Fuel Tax Required in Each State/Province X – Fuel Tax Paid in Each State/Province X = Fuel Tax Still Owed to Each State/Province

Keep in mind that your receipts from each fuel purchase will tell you how much fuel tax you already paid on the day you originally purchased the fuel.

How to File Quarterly IFTA Tax Forms

Now that you’ve learned how to calculate IFTA taxes, it’s time to submit your IFTA quarterly forms. To complete the process, companies must go through their home state or province’s online portal. To find the appropriate location for your company, the International Fuel Tax Association has compiled a list of important online venues here.

In addition, further information surrounding carrier information and access to IFTA file downloads can be found from the provided links.

Extra Tips for IFTA Fuel Tax Reporting

  • Don’t forget to DEDUCT the tax paid per gallon of fuel at the time of purchase to keep from overpaying IFTA taxes
  • Certain mileage exceptions are sometimes available in each jurisdiction. Go here to learn more 
  • Fleets should only purchase the amount of fuel they expect to use in each jurisdiction as states/provinces add surcharges that they keep whether the fuel was used in their jurisdiction or not

If you still have any confusion surrounding how to calculate IFTA tax or submit IFTA forms, access the resources located here, including webinars, contact information, and other IFTA compliance basics. 

Additional Fleet Management Resources

 

Turn to Lytx for All Your Fleet Management Needs

Managing a fleet requires the right tools to help your fleet stay compliant, safe, and ready for the road. Lytx offers a complete suite of products, including fleet dash cams, fleet safety software, and fleet tracking solutions to help you stay focused on day-to-day business operations.

To learn more about our solutions for fleets of any size, or to speak with a representative about your fleet’s specific needs, contact us today.

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