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As a business owner, tax reporting is a regular responsibility. There are a range of different taxes you need to pay, from FICA taxes to federal and state unemployment, as well as federal and state workers’ compensation. And if your business operates commercial vehicles, recording data regarding your fuel usage and reporting taxes on that usage is also a part of your tax filing duties.
If your operation is based in one of the 58 member jurisdictions, you’ll be required to register with IFTA for your fuel tax reporting.
But what is IFTA and how does it work?
Read on to take a closer look at everything you need to know about IFTA.
What does IFTA stand for?
IFTA stands for the International Fuel Tax Agreement. It was established in 1983 by Washington, Arizona, and Iowa as a larger application of the Regional Fuel Tax Agreement (RTFA).
Member states work together to calculate and collect fuel taxes from commercial vehicles operating in multiple jurisdictions. That way, each IFTA license holder only needs to file one single tax report with their home jurisdiction which will cover your operations in all other member jurisdictions.
Before IFTA, commercial vehicles needed to hold individual permits in each state they worked in. This process was time consuming, inconvenient, and costly for many businesses. So the jurisdictions worked together to simplify the process to be more efficient for everyone involved.
How does IFTA work?
To put it simply, IFTA is an agreement made between 58 districts regarding the collection and sharing of fuel taxes. This agreement was created to make it easier for companies that operate across multiple jurisdictions to report and pay their fuel taxes.
Once you’ve registered with IFTA, you’ll receive a license along with two decals for each one of your commercial vehicles. The IFTA stickers will need to be displayed on both sides of the vehicle cab and owners are required to renew their license regularly and pay their taxes on time.
When you purchase fuel for use in a commercial vehicle, you are required to pay taxes on it. The IFTA tax is calculated based on where the fuel is used and then the tax credit is based on where the fuel is purchased. IFTA calculates the difference between those two numbers and simplifies the reporting process.
Who participates in IFTA?
You’ll need to register with IFTA if you’re based in a jurisdiction that is a member and operate in multiple jurisdictions.
There are a total of 58 jurisdictions participating in IFTA - the lower 48 American states and the 10 Canadian provinces. The Alaskan territories, Alaska, District of Columbia, and Hawaii do not participate. Each one of these states and territories has its own rates that you will need to adhere to if you operate there.
IFTA applies to vehicles that:
are commercially used to transport people or goods
have an attached trailer with a combined weight of over 26,000 pounds
have three or more axles
have two axles and a gross vehicle weight (GVW) exceeding 26,000 pounds
Some vehicles are exempt from IFTA regardless of their size including:
RVs, vehicles pulling a camper trailer
Busses used for personal trips
Farm vehicles (in some states)
Government trucks (in some states)
If your vehicle is exempt from IFTA, you will not be required to record or report your fuel usage records.
The IFTA reporting process
Reporting is done in IFTA quarters. The deadlines to file your IFTA report are as follows:
Quarter 1: From January - March with the report due on April 30
Quarter 2: April - June with the report due on July 31
Quarter 3: July - September with the report due on October 31
Quarter 4: October - December with the report due January 31
You are required to complete IFTA filing each quarter even if you didn’t use any taxable fuel. If you fail to file a tax return, file it late, or underpay your taxes, you’ll be fined $50 or 10% of delinquent taxes, whichever amount is greater.
Everything else you need to know about IFTA
Mexico, Alaska, Hawaii, and the Canadian territories are not part of IFTA, so the license is not valid in these locations. Even if you hold an IFTA license, you’ll need to comply with the unique requirements of each of these jurisdictions if your business operates there.
If you travel in a commercial vehicle without IFTA credentials or a fuel trip permit, you may face penalties. These penalties will vary from place to place, but can include fines and citations, which could prove costly to your business.
In order to accurately report your fuel taxes, you’ll need to have accurate records of where you consumed the fuel and where it was purchased. IFTA members are required to keep accurate records of their location, date, and time for all recorded data.
In March 2020, several state departments of revenue, such as Colorado and Alabama, issued temporary suspension of IFTA requirements in light of the COVID-19 pandemic crisis. This temporary relief aims to waive any requirements that could potentially slow down commercial vehicles providing emergency relief or transporting essential materials.
The Pennsylvania Department of Revenue put it best, saying that “it is necessary to waive any statutory provisions that may slow, limit or otherwise hinder the timely and efficient transportation by commercial vehicles during the COVID-19 emergency.”
You can read the full list of states granting temporary waivers here.