Don’t be bamboozled by low pump prices that can mask the real cost of fuel – learn how to buy diesel in the right states. And make sure you understand your carrier’s fuel tax policy.
While there is no way to reduce the taxes you pay to the states through which you run, there are ways to save money on the fuel you buy and, to a lesser extent, on the costs associated with fuel taxes.
If you run 120,000 miles a year, you are burning 20,000 gallons of fuel if you average 6 miles per gallon. At $1.50 per gallon, you will spend $30,000 for fuel. A more informed fuel-buying strategy can shave several hundred dollars off that expense.
Knowing the current fuel tax rates and the related state surcharges gives you the information you need for that strategy: Subtract taxes to find what the raw fuel costs are in each state, then buy where fuel is cheapest. Daily fuel price and fuel tax listings are available through websites, such as the one provided by ProMiles Online on www.eTrucker.com. Or if you’re starting from published listings of average prices by state, you can subtract fuel taxes obtained from a software program like PC Miler Fuel Tax or from a motor carriers’ atlas, such as Rand McNally’s or Universal’s. The strategy means that you buy without regard for whether you are paying more at the pump – or in taxes at the end of the quarter. Whether you pay at the pump or quarterly, your taxes are the same since IFTA (the International Fuel Tax Agreement) distributes your taxes according to the miles run in each state.
IFTA also figures in state surcharges, which complicate the fuel-buying strategy. Indiana, Kentucky, Michigan, Ohio, Vermont and Virginia have per-gallon surcharges; Idaho, New Mexico, Kentucky and New York have per-mile surcharges. While some owner-operators believe in buying only enough fuel to get through surcharge states, this practice can backfire, depending on the actual cost of fuel in each state. There may be times when buying more fuel in a surcharge state is more economical.
Part of the challenge in smart fuel buying is keeping up with changing surcharges and taxes. For example, Georgia, Massachusetts and New York revise their fuel taxes quarterly, and North Carolina revises its semi-annually, according to Rand McNally’s Motor Carriers’ Road Atlas 2003. (The federal fuel tax, 24.4 cents per gallon, is constant in every state.)
“PC Miler Fuel Tax has a table listing the state taxes and surcharges,” says David Scowby, sales director for ALK Technologies, which produces the fuel tax and trip planning program. “However, these tables come out at the end of the quarter and are after the fact. I don’t know of any program that can track changes in taxes and surcharges more closely.”
Other fuel-buying costs depend on how your fuel taxes are managed. Most leased owner-operators depend on a carrier to collect and distribute fuel taxes. “Some carriers charge a fee for this service, which may or may not show up on a settlement,” says Bob Coffman, owner of Consolidated Truck Services in Ada, Okla. “Others pay their fuel taxes by averaging the mileage of their entire fleet.” If your carrier does the latter and you average more miles in low-tax states, you could be paying more tax than you actually owe. Owner-operators concerned about that sometimes do their own fuel tax reporting or hire a third party, such as Consolidated.
Because PC Miler Fuel Tax calculates miles for each state after you enter origin and destination, it can be a helpful tool when carrier procedures are not clear. “Leased operators can use the mileage data base to verify mileages reported by a carrier,” says Ed Siciliano, an ALK vice president. After determining whether you are paying fleet average or actual miles, you can figure if your carrier is charging you for administrative costs.
One-truck independent Jason DeSantis, based in Baden, Pa., uses his computer to calculate quarterly reports, though he has no fuel tax software. “I record my miles through every state by hand, then put it all on a spreadsheet at home and figure it out,” he says. His independence from a carrier and his willingness to do the paperwork rather than use a third party assures him he is paying the bare minimum in fuel taxes.
A good lease will itemize all charges, including fuel taxes and how they are assessed, but other leases simply make a blanket statement about fees. If your settlements do not reflect what is stated in the lease, you should ask for clarification and, if necessary, look for an alternate method of paying your tax.
Not all carriers allow opting out of their systems, however. “Some carriers will object to their contractors doing their own fuel reporting since such exceptions complicate an already complex accounting system,” says Richard DeForest, a vice president with American Truck Business Services in Denver.
Paying attention to your fuel tax management, combined with trip planning that incorporates the smartest stops for buying fuel, can help you maximize your fuel dollars. The other factors affecting where and when you stop can complicate matters, but making buying decisions based on the pre-tax price of fuel is still a sound strategy.
You must get your own IFTA account to do your own fuel tax reporting, whether you do it yourself or through a third party. You do not have to have your own operating authority to get an IFTA account. Coffman says this account information can be added to a lease agreement. Independent owner-operators must have an IFTA account in their base plate state and be responsible for quarterly reporting.
You can also use knowledge of state fuel taxes to smooth out your cash flow and avoid paying large tax bills. Randy Tetric, an owner-operator leased to Universal Am-Can, says he buys in states that have high fuel taxes so that he evens out his taxes on a per-trip basis. “Universal takes out our fuel taxes every trip, not at the end of the quarter,” he says, “and I don’t want a big lump taken out of every settlement.”
For the same reason, DeSantis, who runs Illinois to New Jersey regularly, also buys fuel in states with high tax rates. Furthermore, “I don’t buy fuel in Indiana because Indiana has an 11 cent per gallon surcharge that doesn’t show on the pump. If I buy there, I have to pay that surcharge at the end of the quarter.”
Paying attention to your fuel tax management, combined with trip planning that incorporates the smartest stops for buying fuel, can help you maximize your fuel dollars. The other factors affecting where and when you stop can complicate matters, but making buying decisions based on the pre-tax price of fuel is still a sound strategy.
