IFTA, the International Fuel Tax Agreement, was meant to help make things easier on trucking companies. Although IFTA has certainly improved the tax process, it’s a far cry from being able to be defined as “easy.” If you’re new to the trucking industry, or even if you’re not, there are probably a few things about IFTA that you just don’t understand. Although we here at Prorate Services, LLC are known for offering on-site drug testing in South Dakota for trucking companies, we also are your local experts in IFTA, IRP and trucking compliance. Let us help break down some of the IFTA intricacies for you.
What is IFTA?
IFTA is a tax collection agreement made by 48 of the U.S. states (excluding Alaska and Hawaii) and the 10 Canadian provinces bordering the U.S. The idea behind the agreement is to simplify the taxation and reporting of fuel used by trucking companies that transport goods across multiple jurisdictions.
Who needs an IFTA license?
If you use a truck that weighs over 26,000 pounds to transport goods across state lines, you need an IFTA license. Prior to IFTA, a truck would have to go through a point of entry for each individual state and stop to obtain a tax permit for that specific state as well as a permit sticker. Today, trucking companies no longer have to go through this burdensome process, but they are required to obtain an IFTA license.
How does it work?
Once you have obtained your IFTA license, you will be issued your proof of license as well as a decal for each registered vehicle in your fleet. When any of your vehicles purchase fuel, any taxes paid for that fuel are credited to your IFTA account. At the end of the quarter, the number of miles traveled in each jurisdiction and the gallons of fuel purchased are calculated. Then the average fuel mile is applied to the number of miles traveled in each jurisdiction to determine the tax liability. Any fuel taxes due (or a refund) are paid to the base jurisdiction (the state where you operate your business from). The base jurisdiction is then responsible for transferring funds appropriately.
What are the benefits?
Although IFTA can still seem pretty complicated, there are some definite benefits:
- You only need to apply for your license one time in your base jurisdiction instead of for each individual state.
- You only have to file one tax return with your base jurisdiction.
- You only have one tax payment (or refund).
- If you are audited, you can only be audited by your base jurisdiction.
- You will enjoy reduced operating costs and less hassle.
IFTA is actually put in place to benefit you as the owner of a transport company, but it can seem overwhelming. Don’t forget the team at Prorate Services, LLC is always here to help you with obtaining your IFTA license if you need us. Don’t just use us for your on-site drug testing in South Dakota. We can help you with so much more!