How Is IFTA Tax Calculated for Your Business?

The International Fuel Tax Agreement (IFTA) streamlines fuel tax reporting for commercial motor vehicles operating across multiple jurisdictions within the United States and Canada. It simplifies the process for interstate motor carriers, allowing them to report and pay fuel taxes to a single jurisdiction. Businesses operating qualified motor vehicles that travel in two or more IFTA jurisdictions must comply with this agreement. A qualified motor vehicle is defined as one used for commercial purposes, having two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds, or having three or more axles regardless of weight.

Essential Data for Calculation

Accurate record-keeping is essential for IFTA tax calculation. Businesses must maintain detailed mileage records for every jurisdiction traveled during the reporting quarter. These records should include the date, starting and ending odometer readings for each trip, specific routes taken, and clear indications of when a vehicle enters and exits each jurisdiction.

Equally important are thorough fuel purchase records, which are typically original receipts for every fuel purchase. Each receipt must display the date of purchase, the location (city and state/province) where the fuel was acquired, the specific type of fuel purchased (e.g., diesel, gasoline), the quantity in gallons or liters, and the price per unit or total cost. These receipts substantiate the fuel taxes already paid at the pump in various jurisdictions.

IFTA tax rates vary by fuel type, so knowing the specific fuel type for each purchase is necessary. Businesses must also obtain the current IFTA fuel tax rates for all member jurisdictions for the applicable reporting quarter. These rates are updated and can be found on the IFTA, Inc. Clearinghouse website or through individual jurisdiction tax department websites.

Step-by-Step IFTA Tax Calculation

The IFTA tax calculation process relies on the organized data collected during the reporting period. The first step is to calculate the total miles traveled within each IFTA jurisdiction. This involves summing all mileage entries from trip logs for each state or province where the vehicle operated during the quarter.

Next, calculate the total fuel purchased within each IFTA jurisdiction. This is done by summing the gallons or liters from all fuel receipts for purchases made in each state or province. This provides a clear picture of where fuel taxes have already been paid.

Next, determine the fleet’s average miles per gallon (MPG). This is calculated by dividing the total miles traveled in all jurisdictions by the total fuel consumed across all jurisdictions. Total fuel consumed is often approximated by the total fuel purchased across all jurisdictions.

Using the average MPG, calculate the fuel consumed within each jurisdiction. Divide the total miles traveled in that jurisdiction by the fleet’s average MPG. This step helps determine how much fuel was actually used while operating within each jurisdiction’s borders.

Next, calculate the net fuel or taxable gallons per jurisdiction. Subtract the fuel purchased in a jurisdiction from the fuel consumed in that same jurisdiction. A positive result indicates a net fuel consumption for which tax is owed, while a negative result signifies a net fuel purchase for which a credit may be due.

Then, apply the IFTA fuel tax rate for each jurisdiction to its net fuel amount. Multiplying the net fuel by the jurisdiction’s tax rate determines the tax due or credit for that state or province. This step quantifies the financial obligation or benefit for each area of operation.

Finally, sum all individual jurisdiction tax due or credit amounts to arrive at the total IFTA tax due or refund for the quarter. This cumulative figure represents the final tax liability or overpayment that will be reported on the IFTA return.

Completing and Submitting Your IFTA Return

After calculating the IFTA tax due or credit for the quarter, complete and submit the official IFTA quarterly tax return. Businesses obtain the required forms from their base state’s motor vehicle or tax department website, or access an online portal for electronic filing. These forms are standardized across IFTA jurisdictions, simplifying the reporting process.

The calculated data, including total miles driven, total fuel purchased, and final tax or credit amounts for each jurisdiction, must be accurately transferred onto the IFTA return form. Each section of the form is designed to capture these specific figures, ensuring a comprehensive report of the quarter’s fuel use and tax liability. Attention to detail during this data entry phase prevents errors that could lead to penalties or delays.

Submission methods vary by jurisdiction, commonly including online portal submission or mailing a physical copy. Many jurisdictions encourage electronic filing through secure online systems, which often provide immediate confirmation of receipt. If mailing, the return should be sent to the address specified on the form or the state’s tax department website by the due date.

Payment for any tax due can be made through various channels. Online payment options, often integrated with the electronic filing portal, are a common and convenient method. Alternatively, payments can be made via check or money order, mailed separately or with the return, depending on the jurisdiction’s specific instructions. Retain all supporting documentation, including mileage logs, fuel receipts, and copies of filed returns, for typically four years from the return’s due date or filing date, whichever is later, to facilitate any potential audits.