May 12, 2015
For many company drivers and owner operators, understanding the International Fuel Tax Agreement (IFTA) does not come easy. Drivers who understand the purpose and history of IFTA feel as though they can make more informed decisions that can lead to increased profits and more savings.
Before IFTA, drivers had to purchase fuel permit for each state they traveled in, requiring drivers and carriers to stop at many ports entry. Because of the additional stops and miles, drivers and carriers often lost time and money.
In the 1980’s, officials from Iowa, Washington and Arizona decided on an agreement for one permit. The idea behind this agreement was to have one permit where taxes would be assessed by one authority. This would be distributed to states and localities based on the number of miles driven in each jurisdiction. The agreement grew over the next 15 years and now includes the lower 48 states and 10 Canadian Provinces.
How Does IFTA Work
For drivers, carriers and jurisdictions, IFTA has made paying fuel taxes more efficient. However, without a good understanding of the agreement, additional costs can incur. Although the process is more convenient, it can also be very confusing.
Taxes are paid at the pump and dispersed to each state. The taxes are distributed based on the miles driven in each state. So, if a driver fuels up in Virginia and travels to Louisiana, Louisiana will receive the taxes from the Virginia purchase for each mile driven in that state. If a driver pays for fuel tax in Virginia and they drive through multiple states, the taxes will be distributed to those states because of the IFTA agreement. Issuing one fuel tax license that covers all the states means that drivers no longer have to purchase multiple permits for multi-state travel.
IFTA reports are calculated quarterly and money owed or money credited will be due each quarter. If you purchase fuel in a state with a low fuel tax rate and drive in a state with a high fuel tax rate, you will most likely owe taxes at the end of the quarter. Inversely, if you purchase in a high rate state and run that diesel in a low rate region, you may see a credit at the end of the quarter.
Owner Operators who are leased with a carrier usually operate under the carrier’s IFTA License. Owner Operators will likely see these taxes debited from their O/O settlement. However, that is not always the case. It will depend on the agreement between the carrier and the leased Owner Operator. Sometimes the carrier will require the Owner Operator to obtain their own IFTA License and be responsible for filing IFTA returns each quarter and pay any liabilities.
Luckily, the IFTA process can be easily taken care of with Progressive Reporting. We have a simple cost effective system to quickly and easily complete your filings, allowing you to focus on the road. You fill out your trip envelopes with the locations you drive to and put all your fuel receipts in the envelope. Then, after your final trip of the quarter, you send the envelopes to us in a postage paid package and we’ll do the rest. You can learn more about our Flat Rate IFTA program by clicking here.