In the trucking industry, fuel taxes massively add up to the regular expenses, and keeping track of them is the best both for your convenience and for legal reasons. Unfortunately, making mistakes in filing these takes can put you under unnecessary attention. Basically, being accurate in your tax reports is a safety concern.
Most trucking companies in the USA happen to do interstate shipments, and every state has its own fuel taxes regulations. These taxes are being paid by trucking companies for their trucks traveling common roadways in exchange for roadway maintenance. If we simplify this, we’ll see that every fuel tank refill includes this tax in cost ‒ but what does it look like when you pass the state without refilling the tank? Does it mean that this state will be left without your taxes?
Well, the answer is a bit complicated. To make it easier, the federal government came up with IFTA ‒ International Fuel Tax Agreement, a mechanism which regulates fair tax payments for interstate traveling.
What is considered for IFTA?
IFTA is taken into action by local administrations in every US state and 10 provinces of Canada. These taxes should be filed and paid for every business quarter.
So, who falls under the category of fuel tax payers?
any passenger or freight vehicle with two or more axles and more than 26000 pounds of gross weight for vehicle;
any vehicle that has three or more axles without taking the weight into consideration;
vehicles with additional equipment if the combination weighs more than 26000 pounds of gross vehicle weight.
If you as a carrier fall into one of these categories, to file your IFTA the correct way, you should get an IFTA license, keep track of all the fuel purchased and used during every business quarter. Also, you have to keep track of the distance traveled by every truck that shows taxable and not taxable fuel expenses. Keep in mind that it’s also important to record distances traveled for each jurisdiction and each vehicle ‒ for example, how many miles per quarter did truck A drove in Texas per quarter.
On the other side, every jurisdiction has to do audits of carriers with licenses to be sure of a proper tax collection. Thankfully, not every license obtainer gets to be audited ‒ only around 3 percent of all carriers, 25 percent of them that travel long distances, and 15 percent of them have to be carriers that travel short distances. Basically, this is the way to check if carriers provided jurisdictions with correct and relevant information.
Also, during the audit, jurisdictions proceed with tax returns, check records and reports for any errors, and create statistics reports.
What are the risks of non-compliance?
Non-compliance found during the audit can lead to fines. The biggest fines are 10% of taxes unpaid, including interest funds.
Keep in mind that getting under closer inspection by auditors leads to a different approach in evaluating a carrier’s records. For example, miles per gallon of fuel can be lowered ‒ sometimes down to 20% lower, especially if the carrier is suspected of writing higher miles per gallon records while filing for taxes.
Sometimes penalties can get to the point where the carrier’s IFTA license gets revoked ‒ this happens if you systematically don’t comply with IFTA-associated requirements.
Beware these red flags
So, not every carrier gets to be auditioned for IFTA filing, but there’s always a risk it might be you among those who got chosen for the audit. Let’s see what are the red flags every jurisdiction takes seriously while auditioning licensees.
Late returns filing. If you miss deadlines for filing, this might be treated as suspicious behavior. Make sure you get to file everything before deadlines ‒ to do that, ensure your drivers get enough training in trip reporting and fuel receipts collection, your dispatchers are trained for perfect record-keeping, and your trucks are equipped with necessary tracking equipment such as GPS. Other employees should also be trained on time-management and record checking.
Too many amended returns. While yes, sometimes things don’t end up and you get to file some amended returns, their regularity and large amounts of amended funds give a signal to check your records again ‒ just to make sure that these returns can actually be amended. To prevent filing for too many amended returns, regularly check for mistakes like gap miles, odometer malfunction or missing receipts from some trips. A proper record tracking, record checking, and record keeping is always a key to filing tax reports the right way.
Suspicious miles per gallon records. If fuel purchases and fuel consumption don’t match recorded distances and vehicle type, some questions might arise. The only solution here is to double-check miles per gallon data as well as fuel receipts with dates. Knowing your vehicles, their average miles per gallon rate, and keeping track of all the records will help you to file an accurate tax report.
Too big return amounts. Of course, every licensed carrier is eligible for a tax refund, but if you write down unrealistically big numbers, this might set the alarm off. Be as precise as you can in your records, and make sure you have receipts. Also, you can double-check the dates and amounts of fuel purchased to make sure everything adds up.
Account closed too soon. Even if the carrier revoked their IFTA license and opened a new one in another state or jurisdiction, all the records are being exchanged between the jurisdictions, meaning any shady actions like avoiding filing tax reports by closing your account every now and then will definitely trigger an alarm and start a closer inspection on your records.
As you can see, reporting for IFTA is a somewhat difficult process that requires a lot of your attention and responsibility. And sometimes, doing everything on your own is overwhelming ‒ this is when you can rely on a third party that can take that burden off you and assure accurate tax filing.
Trusted companies like Fleet Care provide accurate data collection and entry from driver reports, receipts and other important sources. They also do all calculations and conduct an internal audit to make sure everything adds up and there are no red flags in your tax records. Basically, outsourcing all the tasks associated with IFTA and other taxes will give you more time and opportunities to grow your business in the meantime.
Hiring a third-party tax accountants will ensure you a safe tax reporting and stable refunds without triggering an individual IFTA audit.