One of the most frequently asked questions I get is “So how does IFTA work anyway?” Once truck owners understand IFTA they all change their fuel purchasing ways. In doing so they lower their fuel cost and improve their profits.
In the day of the original “bingo card” registration, which no longer exists, truck owners had to buy just enough fuel to drive in each state. Since then the International Fuel Tax Agreement (IFTA) was created. IFTA completely eliminated the need to buy fuel in every state. In fact, doing so all but guarantees you are paying far more for your fuel than necessary.
IFTA fuel taxes are collected in all states and jurisdictions that have a state or jurisdiction fuel tax. Oregon does not have fuel taxes but they do issue IFTA accounts. All carriers who operate an apportioned IRP are required to have an IFTA account and a list of states or jurisdictions they operate in. At the end of each quarter you will file your quarterly IFTA fuel taxes. Here is where the value of understanding IFTA turns into lower fuel cost. You owe each state it’s fuel tax based on how many gallons you used while driving in their state. Not how much you bought! What that means is when you buy fuel at the lowest cost BEFORE taxes you will almost always be due a refund at the end of the quarter. Here is how that works using 2nd quarter 2015 IFTA fuel tax rates.
Illinois Pump Price $3.399
Missouri Pump Price $3.259
Most truck owners will buy Missouri because it costs less at the pump.
2015 2nd Qt. IFTA Fuel Taxes
Your truck averages 5mpg
You drive 50 miles in Illinois and 50 miles in Missouri
You owe each state a IFTA fuel tax on 10 gallons of fuel
Buying fuel in Missouri
You buy 20 gallons of fuel in Missouri for $3.259 a gallon
Actual fuel cost without tax is $3.089
You have an IFTA tax credit of $1.70 from Missouri
You owe Illinois an IFTA tax of $4.27
You owe a IFTA tax Payment of $2.57
Instead, Buy fuel in Illinois
You buy 20 gallons of fuel in Illinois for $3.399 a gallon
Actual fuel cost without tax is $2.972
You have an IFTA tax credit of $4.27 from Illinois
You owe Missouri an IFTA tax of $1.70
You have a tax credit and Refund of $2.57
In this example the answer for “How Does IFTA Work” means purchasing fuel in Illinois is a 3 month investment that lowers your fuel cost by almost $.12 a gallon! If your truck averages 5 mpg, you are increasing your profits by $.025 per mile. If you drive 175,000 miles in a year, that is a total savings of $4,375.00! Yes, understanding IFTA can save you thousands of dollars every year for each and every truck you own! Learn more ways to save money and increase profits in my After Market Truck Parts post.