The International Fuel Tax Agreement (IFTA) is an agreement between 48 states in the US (except Alaska, Hawaii, and the District of Columbia) and ten Canadian provinces to simplify the fuel taxation process. Every commercial carrier operating across these states is required to carry an IFTA license to indicate its eligibility for this tax, which you file every quarter.
IFTA allows carriers or trucks to submit a single fuel tax form, even when transporting goods across multiple states. The primary motivation to pass this agreement in 1996 was because earlier, commercial carriers need to obtain state-wise fuel permits and file separate tax reports in every state in which they operated.
So, IFTA reduces a significant burden on fleet management companies.
Is IFTA Applicable to All Vehicles?
The vehicles which apply for an IFTA license need to satisfy one or all of these criteria:
They are used or maintained for the transportation of persons or property
The Power Unit has two axles and a gross vehicle weight of over 26,000 pounds
The Power Unit has three or more axles regardless of weight
The weight of a combination of these exceeds 26,000 pounds gross vehicle weight
Recreational vehicles are exempted since they are used purely for pleasure. Some states have additional restrictions and relaxations as well.
What are the Details Needed?
Anyone who operates a carrier in two or more jurisdictions where IFTA is applicable is required to have an IFTA license. Such vehicles should record the following details during every trip:
Miles driven in each jurisdiction
Fuel purchased in each state
Fuel tax paid in each state
Based on these numbers, each state can collect the appropriate tax according to its own tax rates. Moreover, the states of Kentucky, New Mexico, and New York have a “weight-mile” charge in addition to the standard fuel tax, while Oregon levies only the weight-mile tax.
IFTA Software Tools
The fact that there is a unified tax system came as a blessing for all logistics businesses in America but calculating the tax amount and filing taxes still require much work. Fleet managers would find it cumbersome to take time off their day job to work on tax calculations, and assigning dedicated accountants for this could be an expensive affair. So, various software and logistics companies came up with tools and software packages to help with IFTA.
Here are some ways in which these tools simplify the work further for fleet management firms.
1. IFTA Calculations
How do you accurately measure the distance in each state? Doing it manually would be very difficult and has the potential for considerable human error. That is why fleet management software tools help you record all the miles automatically.
Telematics devices continuously monitor vehicle data and transmit it to the concerned fleet manager, who is saved from the trouble of counting miles. These devices also track idling time, how long the engine was on, how many breaks or halts took place en route and other travel details.
With these numbers, IFTA software helps you prepare reports about the fuel consumption, and state-wise split-up of distance traveled after every trip. At the end of every quarter, the software uses an IFTA calculator to calculate the exact amount you owe each jurisdiction. There is no more guesswork or human error now, and, as a bonus, you can use these reports can for other vehicular analyses, like fuel efficiency calculations.
2. Automatic Tax Filing
The IFTA is a quarterly tax, with the deadlines being April 30th for Q1, July 31st for Q2, October 31st for Q3, and January 31st for Q4. If you fail to file a tax return, file the incorrect tax liability, or filing the return beyond the deadline, the authorities charge a penalty of $50 or 10% of delinquent taxes, whichever is higher. This penalty could also attract a tax audit on your firm, which could halt business and lead to more paperwork and formalities.
So, failing to stick to the rules could be costly for your business. IFTA software tools help you automatically file these taxes on time so that you can submit all the relevant documents without any hassle.
Common Errors in IFTA Filing
Logistics companies, despite the help they get from these technological aids, make some quite common mistakes. Filing late or forgetting to pay taxes are the most common human errors, but there are a few mistakes that crop up because of a technological glitch or misunderstanding of the rules.
1. Excluding Personal Miles
Truck drivers might use the vehicle for personal or non-business purposes, like taking a detour and driving to a highway motel or diner or fixing a flat tire. As far as the IFTA calculations go, a mile driven is counted irrespective of what purpose you drove it for. So, the company must account for every mile.
Another subtlety in the rule is that even when a truck or vehicle has not traveled at all during a quarter, the company should still file an IFTA return as a ‘Zero Miles’ report. You do not have to enter any details about fuel mileage (or simply enter “0” in all the columns), but you should still file a report.
2. Faulty GPS Systems
As part of your vehicle maintenance, you should also ensure that the software and telematics systems installed in the vehicle function properly. The odometer, the GPS sensors, and the IFTA software work in sync to calculate the state-wise division of miles, so all these devices must be accurate. Current GPS devices, along with state-of-the-art satellite technology, can pinpoint a vehicle’s location to as close as 4-5 meters.
A wrongly marked gauge or a faulty meter could result in wrong calculations, which would cause further complications in the IFTA process.
Taxation Made Easy
The majority of taxpayers find the process of taxation a burden that takes up much time. However, everyone’s duty, primarily commercial enterprises, is to have a clean record when it comes to tax filing.
Proper reporting and payment of taxes keep your business off the bad books of authorities, letting you run your business smoothly. With IFTA software, fuel taxes have never been more straightforward.