So, what is IFTA exactly? IFTA stands for International Fuel Tax Agreement. This tax agreement is between the contiguous 48 US states and Canadian provinces. The agreement accounts for how fuel taxes are distributed to the states or provinces where they are due.
But wait, aren’t the fuel taxes collected when I purchase the fuel? Yes they are. The fuel retailer collects fuel taxes according to the tax rate for that state or province. However, fuel taxes for commercial vehicles are to be distributed to the states where the fuel was used, not where it was purchased. For this reason a commercial vehicle owner must add up all the miles driven in each state by that vehicle, and calculate the fuel used in those states. To make things even more complicated, each state has a different tax rate. So, after the fuel amounts for each state are tallied, the fuel quantities must then be multiplied by each state’s tax rate. This will show the total amount due in each state.
But I’ve already paid taxes at the fuel pump. Do I have to pay them again? Maybe. Remember, the taxes paid when the fuel was purchased was at the rate for that particular state. When a commercial vehicle is driven into another state, the rate for that new state now applies to the miles driven in the new state. See this example to the right.
If this sounds complicated, it is. There are services that can do this for you, as well as IFTA software packages to keep everything straight. Just bear in mind that even some software packages will require you to keep track of the vehicle mileage yourself. The best software will have a built in “mileage engine” which calculates the miles driven in each state, and all you have to do is enter the beginning and end of each trip. It’s even better when this IFTA program is embedded inside of a trucking software package that does other things besides calculate your fuel taxes. Just be sure to ask your software vendor if their mileage engine is IFTA approved, and that they update the IFTA tax tables regularly.
If you have questions about IFTA, there are resources. You can call your state’s Commercial Motor Vehicle department where the report gets filed, and ask them anything you are confused about. You can also spend some time reading this handy site: http://www.iftach.org/. It’s a little on the dry side, so don’t try reading when you are sleepy. But everything you ever wanted to know about IFTA is there, along with the current and past tax rates.