The other day, I saw a quote by Albert Einstein who apparently proclaimed, “The hardest thing to understand in the world is the income tax.”
I guess Albert never had to file a fuel tax return or license a truck.
There is no 30-second elevator pitch to explain the complexities of fleet tax compliance. By ‘fleet taxes’ I mean the wide range of taxes and fees that truck fleets typically have to pay, including fuel taxes, vehicle registration fees, trip permits, HVUT and sales tax on equipment, repairs and services that may need to be prorated and paid to jurisdictions where you operate your vehicle.
You don’t have to be a genius to understand fleet taxes, but you do need to devote time and resources to learning about them. It’s always amazing to me how companies will spend a fortune on planning and preparing corporate tax returns, yet dedicate little or no resources at all to fleet tax compliance.
One reason is the fear – or lack thereof – of a tax audit.
While business owners quake in their boots at the thought of the CRA or IRS knocking on their door, how many fleets actually have their IFTA or IRP returns audited? I’ll tell you: it’s 3% per year. That’s a drop in the bucket and a slap in the face to businesses that do invest in fleet tax compliance.
Another reason companies pay so little attention is they see fleet taxes as consumption taxes – no-brainer fees to be paid instead of managed. The boss says to file the paperwork, write the cheque and get the job done. Oh, and make sure we pay only what we owe, not a penny more.
If you’re in charge of fuel taxes, vehicle registration and permits at your fleet, you know this is easier said than done.
Take fuel taxes, for example. Say you operate throughout Western Canada and, for argument’s sake, fuel costs $1 per litre. You’ll pay 13% fuel tax to Alberta, 15% to Saskatchewan, and a whopping 26.67% to B.C.
That’s a lot of pennies to keep track of. Furthermore, everyone’s fleet-tax situation is different, depending on where you haul, what you haul, the equipment you use and how much distance you log in each jurisdiction.
There is no one-size-fits-all solution. You have to really be on top of things.
What’s sad is that there’s no formal program to help you learn the rules of fleet tax compliance. The organizations that oversee IFTA and IRP offer workshops, webinars and other resources, but not the specific fleet-level training that people need.
Save money, reduce risk
Training, planning and organization can pay dividends even the boss can appreciate.
For instance, what’s your system for collecting fuel receipts and making sure each one is valid? If a receipt is missing or disallowed, you’ll pay tax twice: once at the pump and again on the IFTA return, because you’ll have to declare it as non-tax paid fuel.
What if you match receipts to the wrong jurisdiction? Receipts allocated to the wrong jurisdiction, or for fuel purchases in jurisdictions with no reported distance, might not make a difference when you file your IFTA return, but it most certainly will when you are audited.
Are you filing your IFTA returns on time? A late return tells an auditor that you probably don’t have a good reporting system in place. Plus, a missed deadline costs real money: you’ll be charged penalties and interest and you won’t be allowed to renew your IFTA credentials until your balance has been paid.
Do you know what happens if you include tax-exempt fuel use (for reefer units or other equipment that uses a separate fuel tank on the vehicle) on your IFTA report? You’ll lower your fleet-average fuel mileage and be charged more tax than you really owe.
Make sure we pay only what we owe, not a penny more. Hmm. Maybe there is a cost-benefit to actually managing fleet taxes after all. Businesses hire accountants and train their admin staff because corporate taxes are hard to understand and no one wants to get on the bad side of the taxman.
As we move into May, it’s time for carriers to apply the same commitment to training and planning when it comes to fleet taxes.
I’m no Einstein, but that sure seems like a formula for fewer errors, less stress and more savings.
Sandy Johnson has been managing IFTA, IRP and other fleet taxes for more than 25 years. She is the author of the e-book 7 Things You Need to Know About Fleet Taxes and operates FleetTaxPro.com, which provides vehicle tax and licence compliance services for trucking operations. She can be reached at 1-877-860-8025 or FleetTaxPro.com.