More than a fueling

| December 12, 2008

Even though the price at the pump is lower in Missouri, the cost apart from taxes is higher. You or your carrier pay taxes to each state in proportion to miles driven; the potential savings come by paying the lowest price for fuel alone.

Fuel-saving tips are repeated over and over, but fuel-buying strategies don’t get the attention they deserve. Smart buying seems simple: Just check the prices. But states’ fuel taxes hide real, or “ex-tax,” fuel prices. So buying at the true low-price cost gets tricky – and truly confounding in states that regularly change fuel taxes and, in a few cases, tack on a per-gallon surcharge.

The key step in finding the real fuel price is to subtract state fuel taxes from the pump price. “That tells you how much you’re paying for fuel,” says Ed Forman, CEO of Prophesy Transportation Solutions in Bloomfield, Conn. “You can’t control taxes, but you can control fuel costs.”

The International Fuel Tax Association ensures that each state gets fuel tax money based on each truck’s fuel mileage and miles driven in the state. To get fuel mileage, IFTA divides reported gallons of fuel purchased into reported miles driven. To figure fuel taxes, IFTA divides the mileage into the number of miles run in each state and multiplies the result by the state’s fuel tax.

For example, Pennsylvania’s fuel tax is 38.1 cents a gallon. After running 100 miles there at five miles a gallon, the truck pays Pennsylvania’s tax on 20 gallons: $7.62. Across the Delaware River, New Jersey’s fuel tax is 17.5 cents a gallon, so 100 miles there costs the same truck $3.50. Virginia’s fuel tax is only 16 cents, but with a 3.5-cent surcharge per gallon, so 100 miles there costs the same truck $3.90.

IFTA evens out taxes paid at the pump if the fuel is burned in other states. This means that if you buy fuel strictly by pump price, you might buy too much fuel in states with low taxes. Then, at the quarterly accounting, you’ll owe money to high-tax states. “They get penalized for not buying enough fuel in the states they traveled the most in,” says Bob Weaver, CEO of United Fuel Tax.

Gail Whitson of United Fuel Tax Services in Knoxville, Tenn., gives the example of a client who bought Georgia fuel and drove 1,455 miles in Florida. “Because Florida has one of the highest prices for diesel, he didn’t buy there,” she says.

This was in the last quarter of 2006, when Florida’s fuel tax was 29.97 cents a gallon. Georgia was charging only 15.2 cents.

“He bought 302 more gallons than he needed in Georgia,” Whitson says. “He should have bought 269 gallons in Florida.” To get that figure, she divides his fuel mileage, 5.4 miles per gallon, into 1,455 miles.

Because he bought too much fuel – and paid too much in fuel taxes – in Georgia, based on miles run there, the International Fuel Tax Association computes the difference.

“He has a $45.90 credit in Georgia,” Whitson says. “But since he didn’t purchase any fuel in Florida, where he did all his driving, he owes them $80.02.”

IFTA will subtract the owner-operator’s $45.90 Georgia credit from the $80.02 he owes Florida and charge him the difference, $34.12, for driving 1,455 miles in Florida.

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