How Does IFTA Work and What Is It? Understanding the Fuel Tax Reporting System

The International Fuel Tax Agreement (IFTA) was adopted in 1996 to simplify fuel tax reporting for interstate commercial fleets. For decades, IFTA has made it easier for truckers and trucking companies to pay their fuel taxes no matter if they’re traveling over state or provincial lines.

Though IFTA has been around for almost 30 years, many fleets still don’t fully comprehend its importance or how it has adapted with the times. Read on to learn all about how IFTA works and how it may affect your fleet.

What is ifta?

In the realm of the trucking industry, it is essential to have a comprehensive understanding of the International Fuel Tax Agreement (IFTA) and its implications. IFTA is a cooperative agreement between 48 U.S. states and 10 Canadian provinces designed to simplify fuel tax reporting for interstate and interjurisdictional carriers.

IFTA is a framework that allows trucking companies to report and pay fuel taxes based on the distance traveled in each participating jurisdiction. Under this agreement, carriers are required to maintain detailed records of the fuel consumed and miles driven within and across member jurisdictions. By consolidating fuel tax reporting and payment, IFTA eliminates the need for carriers to obtain multiple fuel tax licenses and file separate reports for each jurisdiction.

How does fuel tax work in trucking?

IFTA (International Fuel Tax Agreement) provides a simplified framework for reporting and paying fuel taxes for carriers operating in multiple jurisdictions. 

Here’s the breakdown of how IFTA works:

• Participating Jurisdictions: IFTA involves 48 U.S. states and 10 Canadian provinces. Carriers operating in these jurisdictions are required to comply with IFTA regulations.
• IFTA License: Carriers need to obtain an IFTA license from their base jurisdiction, which is typically the jurisdiction where their vehicles are registered or have a significant presence.
• Reporting Period: IFTA operates on a quarterly reporting basis. Carriers are required to submit fuel tax reports every quarter, summarizing the fuel consumed and miles traveled in each participating jurisdiction.
• Fuel and Mileage Record Keeping: Carriers must maintain accurate records of the fuel purchased and consumed, as well as the distance traveled within and across participating jurisdictions. These records should include information such as the date, location, quantity of fuel purchased, and odometer readings.
• Fuel Tax Calculation: The fuel tax owed is calculated based on the total distance traveled and the fuel consumption in each jurisdiction. The tax rates vary between jurisdictions and may differ for gasoline, diesel, and other fuel types. Carriers can utilize telemetry data and fleet management software IFTA calculator to manage quarterly IFTA. Carriers use the tax rates provided by each jurisdiction to determine the amount of tax owed.
• Quarterly Fuel Tax Report: At the end of each quarter, carriers must compile their fuel and mileage records and complete the IFTA quarterly fuel tax report. The report includes detailed information about fuel purchases, fuel consumption, and miles traveled in each jurisdiction.
• Payment and Distribution: Carriers submit their completed fuel tax reports to their base jurisdiction. The base jurisdiction then reviews the report, verifies the information, and calculates the net tax liability or refund. Carriers must remit the owed tax or receive a refund from their base jurisdiction.
• Auditing and Compliance: IFTA jurisdictions conduct periodic audits to ensure compliance with the reporting and payment requirements. During an audit, carriers may be asked to provide supporting documentation, such as fuel receipts and trip logs, to verify their reported fuel consumption and mileage.
• Record Retention: Carriers are required to retain their fuel and mileage records for a specified period, typically four years. These records should be readily available for review during audits or when requested by the tax authorities.

By following the IFTA procedures and accurately reporting fuel consumption and mileage, carriers can comply with fuel tax obligations and simplify their tax reporting across multiple jurisdictions.

How do you apply for ifta?

The IFTA application process may vary slightly between jurisdictions. Therefore, it is crucial to consult the specific requirements and guidelines provided by your base jurisdiction’s authority. Additionally, ensure that you comply with ongoing reporting and record-keeping obligations once you have obtained your IFTA license.

1. Determine Eligibility: Confirm that your trucking business operates in multiple jurisdictions covered by IFTA. IFTA involves 48 U.S. states and 10 Canadian provinces. If you primarily operate within a single jurisdiction, you may not be eligible for an IFTA license.
2. Select Base Jurisdiction: Identify the jurisdiction where your vehicles are registered or where you have a significant presence. This jurisdiction will serve as your base jurisdiction for IFTA reporting and licensing purposes.
3. Contact the Appropriate Authority: Reach out to the motor carrier services or similar department in your chosen base jurisdiction to obtain the necessary application materials and guidelines. This authority can provide you with specific forms and instructions for the IFTA license application.
4. Gather Required Information: Prepare the following information and documentation for your IFTA application:
1. Business Information: Provide details about your trucking company, such as legal business name, address, contact information, and federal employer identification number (EIN).
2. Vehicle Details: Include information about your fleet, such as vehicle identification numbers (VINs), license plate numbers, registered gross vehicle weight (GVW), and other relevant details for each vehicle.
3. Miles and Fuel Records: Demonstrate that you maintain accurate records of fuel consumption and miles traveled. This may include odometer readings, fuel purchase receipts, trip logs, or electronic logging device (ELD) data.
4. Financial Responsibility: Some jurisdictions may require proof of financial responsibility, such as a surety bond or insurance coverage, to ensure the payment of taxes.
5. Complete the Application: Fill out the IFTA application form provided by your base jurisdiction. Ensure that you provide accurate and up-to-date information. Double-check the application for any required signatures or attachments.
6. Submit the Application: Send the completed application and any supporting documents to the appropriate authority in your base jurisdiction. Follow the instructions provided by the authority regarding submission methods, such as mail, email, or online portals.
7. Pay Application Fees: Some jurisdictions may charge an application fee for the IFTA license. Ensure that you include the required payment along with your application, if applicable. The fee amount varies among jurisdictions.
8. Await Processing: The authority will review your application, verify the information provided, and assess your eligibility for an IFTA license. Processing times may vary, so be patient while waiting for a response.
9. Receive IFTA License: If your application is approved, you will receive your IFTA license from your base jurisdiction. The license typically includes decals or stickers that must be displayed on your commercial vehicles to signify compliance with IFTA regulations.

Most Common IFTA Registration Questions:

What is the information required to apply for an IFTA license?

Each state or base jurisdiction has its own requirements to register for IFTA license but these are the basics:

• EIN or SS# of Owner, Partner or Corporation applying
• Name of owner, partners or corporation
• Legal business name (if different from the name given above)
• Physical location of the business
• Mailing address of the business
• Signature or electronic submission compliant with R940.300 and P160 and date
• Number of IFTA decals required by licensee
• Application fee (if applicable)
• Decal fee (if applicable)
• Statement of existence of bulk storage in all member jurisdictions
• Certification by applicant that all information is accurate

Do you need to file an IFTA fuel tax report and apply for the IFTA license?

You need to file IFTA fuel tax report if:

1. You travel between 2 or more jurisdictions
2. Have a qualified commercial motor vehicle
3. Carry cargo or passengers for hire

In addition, some states have “road use” taxes that also have to be filed if your company is based in that state (for example OR, NY, CT and MD to name a few). 

Do you need to submit an IFTA report?

Any “qualified motor vehicle” that travels between two or more member jurisdictions are required by law to have an IFTA license and decals on their vehicles issued to them by their base state/jurisdiction. IFTA member Jurisdictions include the 48 continuous states and also 10 participating Canadian provinces.

A Qualified Motor Vehicle is a motor vehicle used, designed, or maintained for transportation of persons or property and:

1. has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds or 11,797 kilograms; or
2. has three or more axles regardless of weight; or
3. is used in combination, when the weight of such combination exceeds 26,000 pounds or 11,797 kilograms gross vehicle or registered gross vehicle weight

What is the penalty for filing your ifta report after the due date?

If you qualify for an IFTA license but do not choose to obtain one, you must obtain a fuel tax permit from each member jurisdiction (state) in which you travel. This would only be practical if you drove in 2-3 states and never outside of those states. (culled from several state carrier websites -(AZ/TX/LA/TN)

Continuously filing IFTA reports late can result in fines, additional fees including administrative and reinstatement fees, and potentially a suspension, revocation or cancellation of your IFTA license. If a carrier has lost their IFTA license for failure to pay in one base jurisdiction, and moves jurisdictions, the carrier may be required to post a bond in an amount to satisfy any potential future liabilities of all member jurisdictions.

The IFTA penalties for failing to file or pay quarterly can be significant. Starting the month after you receive your original penalty for late filing, you will be charged .4167% of the tax due every month until the tax amount is paid.  Nevada is the only exception to this rule. Nevada charges the .4167% of the tax due every month as well as an administrative late fee. 

Administration late fees

• $100 the first time 
• $500 the second time
• $1000 the third time
• $1500 the fourth time
• $2000 the fifth time
• $2500 for every time after that

Enterprise Fleet Management and IFTA 

Trucking companies utilizing a robust edge computing fleet management solution have access to a variety of tools to make filing IFTA easy. By leveraging an enterprise solution for ELD and fleet management trucking companies can significantly streamline their IFTA reporting processes. The automation, accuracy, real-time monitoring, and comprehensive data management capabilities offered by such solutions contribute to faster and more accurate filing of IFTA reports, reducing administrative burdens and potential errors associated with manual processes.

Here’s how Konexial can help make IFTA easier for your fleet:

• Accurate Distance Calculation: By utilizing edge computing and GPS technology My20 ELD tracks and records accurate mileage data by state or jurisdictions for each trip. 
• Accurate and Updated Fuel Tax Rates: Konexial provides the most recent fuel tax rates on a quarterly basis for fleets to run accurate IFTA reporting. Based on the mileage and tax rates, fleet owners can see exactly how much is owed or due. 
• Enhanced Record-keeping and Documentation: My20 ELD helps trucking companies maintain comprehensive and accurate records required for IFTA reporting. The solution stores data electronically, including fuel receipts, trip logs, and other supporting documentation. This digital record-keeping simplifies the process of retrieving and organizing relevant information during IFTA reporting or audits.
• Automated Report Generation: Konexial’s administrative dashboard offers automated report generation functionality, specifically tailored for IFTA reporting requirements. The dashboard can generate IFTA-specific reports that consolidate fuel consumption, mileage, and jurisdictional data, saving significant time and effort in compiling the necessary information manually.
• Streamlined Audit Preparation: With accurate and well-organized data, Konexial simplifies the audit preparation process. In the event of an IFTA audit, fleet admins can quickly generate detailed reports and provide the necessary documentation, ensuring smooth and efficient compliance with audit requirements.

The International Fuel Tax Agreement (IFTA) plays a crucial role in the trucking industry, facilitating streamlined fuel tax reporting and payment across multiple jurisdictions. The imposition of fuel taxes in trucking serves several important purposes, including infrastructure funding, encouraging environmental responsibility, and enhancing administrative efficiency.

It is essential for carriers to comply with IFTA requirements by accurately tracking fuel consumption and miles traveled within each jurisdiction. By doing so, trucking companies can contribute to the sustainable development of transportation infrastructure, minimize their environmental impact, and ensure a smooth and efficient operation within the regulatory framework.

Let Konexial help with your quarterly IFTA reporting!