The International Fuel Tax Agreement (IFTA) is a reciprocity agreement among the lower 48 states and Canadian provinces that’s designed to make it simpler for motor carriers that operate outside of their home jurisdiction to report and pay fuel tax.
Vehicles registered under IFTA receive credentials that allow them to go to any IFTA jurisdiction without the need for individual trip permits.
A single quarterly report filed with your base jurisdiction covers all of your travel; your base jurisdiction is responsible for processing your return and apportioning funds to each jurisdiction or requesting net refunds owed to you.
As a carrier, there are two things to remember about IFTA.
First, this system of tax collection is entirely dependent on carriers accurately reporting mileage travelled and fuel that was purchased, received, and consumed. For IFTA, you must be able to substantiate this information for a period of four years from the filing date or the due date of the tax return to which they pertain, whichever is later. Late filings, missing or inaccurate data, or a shoddy system for collecting and maintaining records are big red flags for auditors, who not only represent their own jurisdiction’s interests but also the interests of all other IFTA jurisdictions.
The second thing is that just because IFTA is an “agreement” doesn’t mean that every jurisdiction has the same set of policies or regulations when it comes to fuel tax.
It’s important to take a more systematic approach to IFTA compliance. Here are three things fleets can do to reduce the risk of penalties and fines.
Report all distance on returns
You are required to report all distance for each vehicle licensed under your IFTA credentials. “Report all distance” means all distance, even if you didn’t travel or did not owe tax in the quarter, or your vehicle travelled outside your base jurisdiction infrequently.
For example, say you have a vehicle that travels 150,000 miles in one year; 149,000 of those miles are travelled in your home jurisdiction and 1,000 miles are travelled in a neighboring jurisdiction. All 150,000 miles and all fuel purchases are reportable. You still must file an IFTA quarterly tax return and schedule(s) in four quarters of the year, even if you left your home jurisdiction only once during a single quarter of the year.
Without question, distance records are the most commonly cited issue during an IFTA audit. The fact is, once you put an IFTA decal on the truck, each and every mile it travels becomes reportable.
Know where your GPS data is
Vehicle tracking systems that use GPS or similar technology make it easier to capture distance data and produce the summary reports your jurisdiction requires. However, GPS in and of itself does not calculate distance. It only records, based on longitude and latitude, where a vehicle is at a given moment in time. Routing software and transportation management systems do the distance calculation.
In many cases you can use this trip data to support your IFTA returns in addition to or in lieu of paper documents. However, an auditor will examine the system to determine whether the records meet IFTA criteria for accuracy, reliability, and completeness, including how often a “ping” is collected for each vehicle. He may also ask for your original GPS data. Where is that kept? And for how long? And what’s it going to take to get access to it?
Check your fuel receipts
In order to claim credit for tax paid on a retail fuel purchase, your fuel receipt must show that the tax was paid at the pump or directly to the taxing jurisdiction. In addition, your base jurisdiction will have a list of requirements including the date of purchase, the quantity purchased, and information to verify that the vehicle is IFTA-credentialed and belongs to your fleet.
Note that the original fuel receipt is not required (a copy is fine). But a receipt that shows evidence of erasures or alteration will be disallowed unless you can demonstrate the receipt is valid. It’s a costly problem because you pay the tax twice: once at the pump and again on the IFTA return because you have to declare it as non-tax paid fuel.
You may be filing your IFTA returns and not hearing a peep from your base jurisdiction. However, the message I hear from auditors is that even carriers who think they’re doing everything right, aren’t. Remember, the government presumes that you know what you’re agreeing to when you apply for your IFTA license. Knowing the rules set out by IFTA – and your home jurisdiction – will help reduce the risks associated with an audit.
Sandy Johnson is the founder and managing director at North Star Fleet Solutions in Calgary. The company provides vehicle tax and licence compliance services for trucking operations ranging from single vehicles to large fleets. She can be reached at 877-860-8025 or northstarfleet.com.