How the International Fuel Tax Agreement Works

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How the International Fuel Tax Agreement Works

The International Fuel Tax Agreement (IFTA) is an agreement between the contiguous states and Canadian provinces designed to simplify the reporting of fuel use by commercial vehicles that operate in multiple jurisdictions. Alaska, Hawaii, and Canadian provinces are not part of this deal and operate separately. Each business that operates under IFTA, generally commercial trucking or other transport services, receives an IFTA license and two decals for each qualifying vehicle. The filer reports fuel use quarterly, and these reports are used to determine net tax or refund due and to redistribute taxes from collecting states to the states to which it is due.
This tax is required for motor vehicles used for transportations of persons or property, and there are specifications that qualify vehicles as well, and are as follows:

1. The power unit (the cab of a semi-truck) has two axles and a gross vehicle weight or registered gross vehicle weight that exceeds 26,000 pounds, and/or

2. The Power Unit has three or more axles regardless of weight, and/or

3. Used in combination, when the weight of such combination exceeds 26,000 pounds gross vehicle or registered gross vehicle weight.

Gross vehicle weight refers to the maximum operating weight of a vehicle as specified by the manufacturer, including the vehicles chassis, body, engine, fuel, driver, passengers and cargo, but excludes the weight of any attached trailers. The more recognizable effects of gross vehicle weight come in restrictions on which vehicles may use which roads. For example, vehicles exceeding two axles or exceeding 6,000 pounds may be forbidden to use local or city roadways, but the restrictions are largely dependent on local policy.

Exceptions do exist for Recreational Vehicles. Vehicles that qualify for these exceptions include motorhomes, trucks with attached campers and buses when exclusively used for personal pleasure by an individual. Some states also have exemptions that usually apply to farm vehicles and government vehicles.

Prior to IFTA, each state had its own independent fuel tax system, and any commercial vehicle which uh ghjgyjtwas subject to these fuel taxes required tax permits for each state it operated in. The majority of states established Ports of Entry to issue permits and enforce tax collection. The process was cumbersome for both the trucking industry and the states, which was one of the reasons IFTA came to fruition.

IFTA simplified the tax implications of fuel consumption for operations that rely on commercial motor vehicles. Each vehicle is operated under a licensee. For example, every freight truck that is owned by UPS or Fed Ex are all operated under the same license, and the same is true for smaller operations. As these vehicles buy fuel, they are accordingly taxed, and any taxes paid to the states are credited to the licensee’s account. At the end of every fiscal quarter, the licensee completes and files their fuel tax report, listing all miles traveled in all jurisdictions and listing all gallons purchased. The average fuel mileage is applied to the total miles traveled to determine tax liability in each jurisdiction. Any amount of fuel taxes due, or refunds due are then paid to—or by—the base jurisdiction who issued the license. The member jurisdictions then transfer funds accordingly.

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