Tag Archives: International Fuel Tax Agreement

What is the IFTA And Should We Raise Fuel Taxes?

From new truck drivers to experienced owner-operators, understanding the International Fuel Tax Agreement (IFTA) and what it means for the industry is like navigating a maze. Generally, it is something left to back-office accountants or fleet managers.

Yet, this is an important aspect of how companies make money on the road. Prior to the IFTA, truck drivers and fleets were required to purchase a fuel permit at their port of entry, which inevitably led to lost time and additional route miles. It wasn’t long after that officials in three states agreed on a universal permit. Then, over the course of the 1990s, 48 states and 10 Canadian provinces became part of the IFTA.

The original intent was to unify the process so that tax authorities, no matter where they are from, could assess one permit-type. The taxes could then be distributed to states and localities purely based on the number of miles the truck driver drove in a particular jurisdiction.

How Does It Work?

The IFTA basically simplifies a complicated arrangement of fuel taxes collected amongst the states and provinces. It then distributes them accordingly.  After the initial 48 states joined, the number remains at 48, since two states are still not part of the program.

Oregon does not participate in the program, although they do have agreements written up with states who are in the program. Their system is designed to track where the fuel is used. This way companies that operate in the other states benefit from the program. What does this mean for truck drivers operating in Oregon? They should only purchase the fuel they are planning to use in the state as they enter the state.

The other state not officially on the program is Hawaii, who’s reasons for not being on the system should be obvious. Honestly, if you are driving a big rig in Hawaii, all we have to say to you is, well, enjoy the scenery!

There are some other intricacies that other states adhere to; mainly fuel “surcharge” states. For those states, which includes Indiana, Kentucky, and Virginia, you will want to – much like Oregon – buy only the fuel you plan on using in the state once you enter the state.

The mechanics of the IFTA were developed by a non-profit organization tasked with helping come up with the agreement. The fact that so many people were questioning the IFTA and how the taxes were distributed were what led to its creation.

How the IFTA Increased Efficiency

The IFTA was created to foster efficiency when it comes to collecting fuel taxes from fleets. At the same time, however, motor carriers must be well aware of how the agreement works. Without that, additional costs could become a major problem.

Consider this: the taxes are divvied up based on the number of miles driven in each state. If a truck driver fuels up in New Mexico and then drives into Texas, the truck driver will receive the tax from New Mexico for each mile driven in New Mexico.

If you are a truck driver buying your fuel in Pittsburg and then going on through Ohio, your taxes will be disbursed accordingly, depending on the state. Issuing a single fuel tax license covers truck driver in states that operate within them. This eliminates fleets from having to purchase multiple permits for multi-state travel.

Are There Problems?

One of the most common problems associated with the IFTA is the confusion surrounding the different tax rates in each state. Consider that in Oklahoma, the tax rate is 38.4 cents per gallon, as opposed to Connecticut, where the tax is 79.3 cents per gallon.

Many question how the reports are calculated. Trucking companies should be aware that they are calculated by the quarter and any money owed or money due will be calculated by state. You will owe taxes at the end of the quarter, depending on the state.

The breakdown is based upon the state. So, if you buy fuel in Connecticut and run through the fuel in Burlington or Boston, you will receive a credit on your charges at the end of the quarter. While this program may seem obtuse at first, it is far better than wondering where you will end up at the end of the day where state taxes are concerned.

On the flipside, owner-operators that are working for a fleet are responsible for keeping track of their tax liabilities and ensuring they are paid. While the rules are confusing, the agreement itself streamlines the process by which state taxes are determined depending on the amount of time the trucker operates in said state.

Do Truckers Support Higher Taxes?

Truck drivers in the United States use quite a lot of fuel. In fact, according to the American Trucking Associations (ATA) truckers and trucking companies use an average of 28 billion gallons on an annual basis.

Conventional wisdom would say that this is one industry that does not want to see a rise in federal fuel taxes. Consider that fleets and owner-operators already fork over 24.4 cents per gallon and it isn’t difficult to see where they might have a problem with that cost rising even higher. If you look at the official numbers, what truck drivers pay in fuel taxes is quite higher than what passenger car drivers pay.

It could be for this reason that the ATA’s support of a rise in the federal fuel tax comes as a surprise. The ATA has been pushing Congress to raise the fuel tax many times over the past decade. There is a critical reason why this is so.

Truck drivers depend on roads, bridges, and tunnels to get the job done. If the nation’s infrastructure is failing because of a lack of funding, the people and organizations that suffer the most are those that stand at the forefront of our supply chain.

What is the Problem?

There is an unfortunate fault that was written into the original legislation. Fuel taxes are not levied to inflation. Even when the fuel tax was last raised in 1993, it was inadequate at best. The level of funding put into the Highway Trust Fund has been sorely inadequate in keeping up with our nation’s infrastructure needs.

Some Highway Trust Fund advocacy groups have proposed the fund be buttressed and finally indexed to inflation, which would decrease negative revenue impacts to motor carriers and improve overall fuel efficiency. The real heart of the matter hearkens back to something we have discussed before: The current infrastructure proposal.

The trucking industry has announced that they prefer fuel taxes over converting the interstate highway system to a high level of toll roads. In an interesting twist, this is one area where the Owner-Operators Independent Drivers Association (OOIDA) and the ATA actually agree. According to a combined analysis, manning the toll system employment and infrastructure would move money away from infrastructure upgrades.

Fortunately, there have been some plans floated to address the problem without significantly shocking the system. Let’s take a deeper look at the specifics of these proposals.

Different Fuel Tax Funding Plans

One of the plans floated has been to gradually increase the fuel tax by 20 cents per gallon. If you look at that over the next decade, it could raise nearly $335 billion. That looks like a big number, but it still doesn’t come close to covering the gap. Many trucking analysts put the sweet spot number at just a couple hundred-billion shy of a trillion dollars.

Could the trucking industry weather a fuel tax hike designed to raise nearly a trillion dollars, let alone over a quarter-billion? Proponents of the plan state that the trucking industry has survived regardless of the fluctuations in diesel prices, which leads some to say that all the idle speculation is premature.

With the economy in good shape and economists unsure of what the effect of a potential fuel tax hike would have on the trucking industry, lots of questions abound. With the industry constantly battling congested highways and roadways in utter decline, everybody who has a stake in the industry is hoping for beneficial change.

Will infrastructure spending from a hike in the fuel tax – as opposed to increased deficit spending – cure the infrastructure ills of our nation? At this point no one knows. There are some signs of inflation creeping up. When combined with the fed’s signs that they will increase interest rates, one can only wonder what the long-term industry effects will be.

No matter what, there is never a bad time to invest in the nation’s infrastructure. Investing in the health of our transportation system makes simple economic sense. Not only does it create jobs and a sense of security, but it raises the morale of a nation. Seeing our highways built up the way they should be; in a way that can compete with some of the most advanced countries of the world, is a net benefit for everyone involved. If an increase in the fuel tax needs to be the catalyst for that change, some say so be it.

How Well Do You Know IFTA, BOC-3 and Heavy Fuel Tax Filings?

Have you started your own trucking company? Are you striking out on your own as an independent operator? If you answer yes to either of these two questions, you may be wondering where to start. Don’t worry, we’re here to help.

Whether it be navigating your annual IFTA filings or maintaining driver files, we’ve got the information you need. Let’s start by taking a look at the types of filings you will be required to understand and file on a regular basis.

International Fuel Tax Agreement Filings

The International Fuel Tax Agreement (IFTA) is an agreement that was made between the U.S. and Canada to simplify the reporting of fuel usage by fleets who are operating in more than one jurisdiction.

A fleet operating with IFTA receives a license and decals for the qualifying vehicles that it operates. The carrier must also ensure a quarterly fuel tax report is filed. The report is then used to figure out if anyone gets a refund and how taxes should be redistributed throughout collecting states and provinces.

IFTA specifically covers vehicles that fall under the following descriptions:

  • Having two axles and a gross vehicle weight of 26,000 pounds
  • Having three or more axles, regardless of the vehicle weight
  • Is used in combination, when the combined weight exceeds 26,000 pounds

The tax is mandatory if a vehicle is used for the transportations of people and property. The requirement is also covered by weight restrictions. Exceptions are made for recreational and some farm or government vehicles, but those exceptions are state specific.

How it Works

The IFTA system uses a pay now or later principle. As you buy fuel, any taxes paid to the state is credited to your account.

At the end of the fiscal quarter, you must file a fuel tax report. On this report you will list all the miles traveled and all the gallons of gas purchased. At that point, the average fuel mileage is applied to the miles traveled and a tax liability is determined.

Just as happens when you file federal taxes, you will either receive a refund or owe money. Member states and provinces then handle transferring the funds accordingly. For more information on exactly how to calculate the final number, the state of Florida provides this handy worksheet.

Heavy Fuel Tax Filings

The Heavy Vehicle Use Tax (HVUT) is a federal tax that is imposed on the use of any public highways by certain heavy motor vehicles. This list generally includes trucks, truck tractors, buses, and other types of motor coaches. The tax is applied to vehicles with a gross weight of 55,000 pounds or more.

For a list of state fuel taxes for heavy motor vehicles, check out this website. The HVUT is an offshoot of the standard federal gas excise tax. Generally, these taxes go into various cleanup fees and programs run by the state and federal governments.

To file an HVUT, use IRS form 2290. Keep in mind that these forms must be filed through mail and cannot be uploaded or filed digitally.

 

BOC-3 Filings

The BOC-3 filing is required by the federal government and pertains to individuals or companies operating in the transportation or logistics industries.  BOC stands for “blanket of coverage” and exists to assign a person in a business who can receive and send legal documents.

Companies operating as process servers are capable of granting BOC-3 filings.  They must also employ or lease the service of individuals within each state and of course must be registered with the Federal Motor Carrier Safety Administration (FMCSA)

BOC-3 filings are pretty uniform across the board, though different agencies may process things slightly differently. You might find one service only handling the BOC-3, while other may also offer services in safety, compliance, materials and other areas.

Your BOC-3 filing form can be found here.

How Can Someone Start a Trucking Business?

Almost everything you buy has been moved by a truck at some point, whether it’s food, gasoline, clothing or other items. The trucking industry can be very lucrative, but it is also a highly competitive industry. It’s smart to research the industry thoroughly before starting your own company to be sure you understand everything involved with starting a trucking business.

Decide If You’ll Subcontract

One of the first decisions you need to make when starting your trucking company is deciding whether you will hire employees or use subcontractors to drive your trucks. They are positives and negatives to each method and trucking companies have succeeded both ways. There are generally less start-up costs involved when you have sub-contractors instead of employees, but you also have less control over the schedule of the drivers and you may have to pay a higher percentage of the money you make to subcontractors than you would pay to company drivers.

Trucking companies who hire drivers to work for them as employees have more control over the drivers and can set the rates that they will pay the drivers. The downside is that the company has to pay for insurance and equipment costs that would normally be paid by subcontractors.

Starting The Business

In some ways trucking companies are started the same way that other businesses are started. The company owner must register the business with all applicable state, federal and local agencies. You must get a business license and all necessary permits before your company can legally operate. It is essential that you get a Federal Department of Transportation Number. This number must be displayed on all of your trucks. You also need to apply for and receive Federal Motor Carrier hauling authority.

Tax Forms and Registrations

There are several tax forms that must be completed periodically for your trucking business to be operating legally. One of these is a heavy use tax form. You also need to obtain International Registration Plan tags as well as International Fuel Tax Agreement decals from your state department of transportation. A BOC-3 filing is required to operate a trucking company legally in the United States. It’s best to visit a local licensing office or your state department of transportation’s website for specific information you need to legally operate a trucking company in your state. It’s best to talk to an accountant who has experience with the trucking industry when you are forming your trucking company. They will be able to offer business advice and help you manage the company’s finances correctly right from the start.

Trucking Insurance

There are very strict insurance requirements that anyone who owns a trucking business must meet. You must have insurance on your vehicles as well as the company itself. Some of the companies you haul freight for may have even stricter requirements than the federal regulations, so make sure your insurance policy meets their requirements before hauling loads for those companies.

Equipment

If you decide to hire truck drivers and operate your own fleet of commercial vehicles, you need to purchase the vehicles. Most experts in the trucking industry recommend starting with just one or two vehicles and adding to your fleet as time goes on. This gives you the ability to learn the trucking industry without being overwhelmed by the number of drivers and vehicles in your fleet. Think about the type of freight you will be hauling before purchasing trucks and trailers so that you buy the appropriate vehicles. Refrigerated trailers are likely to be more expensive than dry van trailers, but they are necessary if you will be hauling food or other perishables.