Filing IFTA reports appears as one of the most challenging tasks for fleet managers of many trucking companies. To continue running the business smoothly and get past the dreaded audit, an organization needs to complete this lengthy and tedious process of preparing IFTA reports before the deadline.
For some, IFTA is a complicated process. Knowing about IFTA's history and the purpose of filing reports will make the task of understanding this accord a whole lot easier.
What Is IFTA And How It Works
International Fuel Tax Agreement or IFTA refers to the consensus between 48 states of the US and ten Canadian provinces. This agreement simplifies the way inter-jurisdictional carriers report and pay taxes for their fuel consumption through the use of a single fuel tax license.
Before IFTA, truck operators needed to acquire fuel permits from every region they entered. This former process resulted in more fuel expenditures as trucks go from one permit purchasing centers to another, lost hours, and additional cost due to many other fees.
IFTA also saved businesses from many hours of clerical work, inconsistent filing of periods, and spending millions of dollars in administrative costs.
IFTA compensates the appropriate jurisdictions for the use of their roads and other expenses as a result of heavy commercial vehicles passing through their state.
When a trucking company submits their IFTA report, they only send the data to their base state. In turn, the base state collects and distributes taxes to the declared regions in the said report.
Who Is Required To Submit An IFTA Report
Every carrier considered as a "qualified motor vehicle" operating within the jurisdiction is required to adhere to the conditions of IFTA. The tax affects vehicles utilized, crafted, and maintained to transport people or properties. It also applies to trucks meeting the below qualifications:
A qualified motor unit with two axles and gross or registered vehicle weight of 26,000 pounds
A vehicle or combination of power units with a total or registered weight exceeding 26,000 lbs
A vehicle unit with three or more axles
Completing the IFTA Report
Below indicates good practices and steps in completing an IFTA report.
Requirements For A Quarterly IFTA Report
It is vital for companies utilizing IFTA qualified motor vehicles to keep track of several key items every quarter of the year. The IFTA reporting process could be a lengthy and tedious task for anyone who is in charge of it. Staying ahead helps avoid rushed work and huge mistakes, which may put the company in the list of organizations to audit by the governing body.
Keep tabs of the following details for IFTA reporting:
Gross miles and taxable miles traversed in every state under IFTA jurisdiction
Tax-paid gallons bought within the member jurisdiction
Total miles traversed, including regions not covered by IFTA
Total consumed gallons of petroleum, including those not within member jurisdiction
Fuel receipts must be kept and preserved as proof of the amount spent. Other essential details to log include purchase date, fuel type, seller's name, seller's address, number of gallons purchased, and the price per gallon.
To make it easier for a trucking company to file reports, the following options are available:
Use tools like Rigbooks to do all the math for you
Use ELD equipped with IFTA reporting features
Hire experts to do the IFTA filing
Best IFTA Reporting Strategies
Fleets use a variety of methods on keeping track of miles traveled for IFTA reporting. Some companies use odometer reading, Google Maps, and other IFTA-approved software.
Ultimately, the best method kindles high accuracy and driver compliance. It is essential to maintain accuracy, so resist the urge to estimate the trip mileage. Keep a record of everything, including any detours and additional stops drivers need to take while on the road.
Start collecting all the things needed for the computation:
All fuel receipts covered by the reporting quarter
All state-to-state miles of the same reporting quarter
Current IFTA tax rates
Then, add up all the miles. Do this for every state or Canadian province where the carrier traveled in the reporting quarter.
GPS, ELD, or tracker users can download a report that gives total miles traveled for each region. Now, sum up all miles driven in all states.
Compute the total fuel gallons bought for each state. Find the total of gallons of fuels purchased for all states.
If the region has an online IFTA portal, the officer or accountant can stop here. Just enter the state-to-state miles and the total of gallons purchased per state. The system will calculate the rest of the returns and provide the results in a few seconds.
If you are a freight factoring company, calculate the entire mileage for the quarter with this formula:
Sum of miles driven in all regions / total gallons of fuel purchased in all states = Entire Fuel Mileage
Then, calculate fuel burned in each state:
Total miles driven in each region / Entire Fuel Mileage = Gallons of fuels burned in that region
Do this for all states where the company qualified motor vehicles traveled in.
Next, calculate the fuel tax required and paid to each state. To determine fuel tax rates for each state, check this rates table.
Gallons of fuels burned in that region * current fuel tax rate for that region = Required fuel tax for that region
Take note that surcharges will apply in some states such as Indiana, Kentucky, and Virginia.
Compute the fuel tax paid for the region.
Total gallons of fuel bough in each state x fuel tax rate for that region = Fuel tax paid for that region
Finally, compute for the total amount of tax you owe for each state.
Required fuel tax for each region – Fuel tax paid for that region = Fuel tax amount owed to that region
Values may be negative, which means that a carrier company won't receive a refund for that region or state.
Sum up all fuel tax amount owed to that region. These computations may return with a negative result. Subtract the amount to the generated total.
Filing the IFTA Report
Some states may require paper filing. In this case, enter the values to the appropriate fields of the form provided by the state. Forms from different regions vary, so take extra caution and review the data before declaring them as official public records.
Luckily, some states have an online IFTA reporting portal. These systems allow easy inputs and automated calculation of all figures required for the report.
Deadline and Fines For Late IFTA Reports
A fleet must take IFTA reporting seriously every quarter. If it falls off the organization's radar resulting in a late submission or none at all, a fine of $50 or 10 percent of the net tax will apply. Moreover, this is a one-way ticket for the trucking company to land on the nominees for an audit.
Deadlines for IFTA reports are as follows:
First-quarter (Jan to Mar): April 30
Second-quarter (Apr-Jun): July 31
Third-quarter (Jul-Sept): October 31
Fourth-quarter (Oct-Dec): January 31
Whether an organization operates or not, it still needs to submit an IFTA report with zero miles.
What Is An IFTA Audit?
Many companies fear an IFTA audit. Those who experienced and survived one had a great story to tell about the challenges they endured.
So how can you get audited, and what are the things to expect in an IFTA audit?
Auditors come knocking on an organization's door sooner than later when they find inconsistencies or mistakes in the IFTA report. Thus, the best way to get off their radar is by accurately following the regulations.
The IFTA auditors don't want to close a business or exact huge fines. However, if the company keeps on committing the same mistakes, penalties will surely apply.
Auditors will send a 30-day notice in the form of written communication to the motor carrier they selected before their inspection. This message reveals the tentative dates for the audit.
During the audit, the inspectors will try to understand and find any weaknesses in the processes or the way the licensee collects IFTA data. A test of compliance will take place afterward, and this will generate a report of bad practices in managing mileage and fuel data.
After the above steps, the auditor will present their findings with penalties and interest figures. Further audit reports and Notice of Assessment will generate and delivered to the trucking company.
Conclusion: IFTA Reporting Easier Said Than Done
The whole IFTA reporting process can become lengthy and almost impossible. Enough preparation, consistency in records keeping, compliance, and attention to detail will help an organization to carry out this task smoothly and avoid the risk of getting selected for an excruciating audit.