“This is Tito.”
I could hear the stress in his voice right away. I sensed a complaint was coming, and he needed to air it and have someone agree with him. He felt shafted by a bill for his quarterly fuel taxes.
It was his first IFTA filing through the company he had signed a lease with.
I listened intently as he described what he interpreted as a $400 tax bill from Pennsylvania. Whether you know the exact fuel tax rate for each state or not, there’s a good chance if you’re reading this and are an owner-op or small fleet owner you know that Pennsylvania fuel taxes happen to sit at one of the highest rates in the country -- $0.752 per gallon.
Listening, I thus assumed the owner’s claim of a bill from that state as correct.
But what Tito was looking at was a $400 settlement deduction with no details or itemization. Now that he knew what to ask for, he calmly called his company and requested a copy of his quarterly IFTA report, which as a new owner he was previously unfamiliar with. If you’re in a similar situation, do you know the basics of how the IFTA tax system works so you can reconcile the data?
We went over those basics, and I’ll try to cover a few of them here, too.
Understand that IFTA, or the International Fuel Tax Association, is a non -profit corporation that administers the sharing of fuel taxes between U.S. states and in Canada amongst the provinces and states.
Get and bookmark an updated listing of all state motor fuel tax rates
- Understand that for all but 4 states (Oregon, New York, New Mexico and Kentucky) you will pay only the apportioned taxes to each state you drive in based on the miles driven within the state, calculated using your IFTA miles-per-gallon.
- You will end up paying the required taxes due, even if you do not purchase fuel in the state.
- The states where you purchase more fuel may lead to you paying more taxes than you owe that particular state. If this happens, extra taxes are then shared or apportioned with the states where you did not purchase enough fuel to cover the tax liability.
[Related: Don't over-insure your trucking business]
How it tends to work for most owners
Generally speaking, you’ll tend to pay about the same overall total amount of taxes quarter to quarter, given the fees are based on the miles you run and the states in which you run them. If your IFTA MPG (the number of miles you ran in the quarter divided by the number of gallons you purchased in the same time period) is 7 mpg, the average tax per mile may calculate to somewhere between 5 and 8 cents per mile, depending on the states you drive in. The bulk if not all required fuel taxes are paid at the pump or other point of purchase.
It is indeed possible to accumulate not only a debt, like Tito, but a credit, depending on just what states you purchase fuel in versus where you actually drive the bulk of your miles. Also, the higher your IFTA MPG, the lower your tax per mile, but the IFTA MPG will will likely be different from what you are tracking in your truck day to day, given its quarterly calculation is based on actual purchases and miles driven over that specific time period.
Subtract the state’s fuel tax rate from the pump price (or your discounted price)
Since you're going to end up paying the fuel tax based on the miles you run, not where you purchase the fuel, do this when you’re evaluating where to purchase fuel. This effective strategy is to plan your fuel purchases based on the price you will pay for the fuel only. Think of the fuel taxes as a separate bill -- you do not have to purchase fuel in every state you drive through.
As an example, for a trip from Pennsylvania, delivering in Virginia, where is the lowest cost fuel?
I searched while writing this and found lower fuel prices, after the taxes are subtracted, in Pennsylvania and Maryland rather than Virginia. Both lower-fuel-price states are higher-tax states when compared with Virginia:
- Pennsylvania: $0.752 per gallon in state tax
- Maryland: $0.369 per gallon
- Virginia: $0.353
Every location is different. Don't automatically assume that low-tax states are where you’ll find the cheaper fuel. Conversely, higher-tax states won’t automatically cost you more.
Buy the lowest cost fuel calculated without the taxes
Once truck owner Tito received his IFTA report and we reconciled it, this cleared up his questions, and he then had a better understanding of how to plan his fuel purchases to help lower his fuel cost overall. Also, he realized that a part of the bill he received was the administrative cost the fleet charged to track and create the report on his behalf, as it was laid out in the contract he signed. Most fleets leasing owner-operators will give you the option to do this work yourself. IFTA’s generally not a heavy lift once you understand it fully -- in 2016, nearly 7 in every 10 owner-operators reported handling it entirely on their own, without even the benefit of third-party software. A scant 16% reported their leasing carrier handling their report.
Weigh the cost to outsource the work to the fleet versus the value of your own time to make the decision on whether to handle your own IFTA.
If you have questions, drop them in the comments below or reach out to me directly.
[Related: Take control of ELD data to avoid IFTA, IRP audits and fines]
Find more information about quarterly IFTA accounting in the Overdrive/ATBS-coproduced "Partners in Business" manual for new and established owner-operators, a comprehensive guide to running a small trucking business. Click here to download the 2021 edition of the Partners in Business manual free of charge.
