Under IFTA, a truck is registered and thus, can obtain a tax permit from one state. Every time the driver drives through any state or province, the tax gets added to the permit owner's account. At the end of every quarter, a fuel tax report is generated, showing every detail like miles travelled and fuel spent in each region.
Tax calculation is necessary because it allows us to evaluate different investments. The amount of the transaction decides which assets to sell and when. Tax calculation can be used as an essential planning tool too as it can help in various ways to lower the tax fees. Tax calculation affects different investment strategies and financial planning.
IFTA helps calculate the amount of tax due or tax credit for each region, ascertain the tax liability for each fleet, and understand the fund dissemination process. Under IFTA, the carriers need to report the inter-province use of fuel to the base state that can collect the taxes on the net usage of energy, process fuel tax returns, and understand the distribution of funds.
The International Fuel Tax Agreement (IFTA) states that each province receives its share of tax based on the number of miles the truck drivers run in each region. So, if a truck driver runs 100 miles in San Francisco and the truck gets 5.9 mpg, he pays tax on 16.9 gallons of fuel used in Santa Cruz. This region then bills the home state, which bills the truck driver. But if he buys more energy in San Francisco than the mileage requires, Santa Cruz refunds the home state, reimbursing the truck driver. This isn't a big issue if the truck driver only runs in a few states, but if he runs in many other regions, varying fuel tax rates can mean hundreds of dollars added or subtracted.
That's how an IFTA calculator works
Some carriers pay the fuel tax and charge them back to their fleet owners. But some companies pay the tax and absorb the cost incurred. If the company pays the tax and doesn't trust the truck drivers, they should buy the fuel from a place where the pump price is the lowest.
In either case, it is crucial to know the current fuel tax rates. The tax can be paid at the pump or also every quarter since the IFTA charges tax according to miles run in each state.
IFTA calculator figures in-state surcharges, which complicates the strategy of fuel-buying. Other expenses depend on how the truck driver manages the fuel tax.
Quick steps to calculate IFTA Fuel Tax
IFTA reporting and tax calculations can be summed up in five simple steps:
I. Tracking the miles:
In this case, fleet managers and drivers have to do the teamwork to record the amount of fuel consumed in different regions correctly. This requires fleets to be too coordinated in handling the drivers' record of duty. Here to avoid human error and leverage errorless forms, trucking accounting software should be used.
II. Adding purchases of fuel:
The following information required for IFTA reporting is each province's total energy. Carriers should remember to have the original bills or invoices to prove the payment of fuel tax. The documents include the date of fuel purchase, name & location of the fuel seller, type of fuel, plate number of the vehicle, amount of energy purchased, the rate per gallon, and the truck driver's name.
III. Calculating fuel purchase per region:
If you have the first two information, then it's time to calculate the vehicles' mileage in each area. A simple formula to be used is -
Total Miles Driven/Total Usage of Fuel = Average Mileage.
Then you have to calculate the gallons burned using this simple trick -
Total Miles Driven/Average Fuel Mileage = Gallons Burned
IV. Calculate taxes owed:
The fuel purchased in each region is the actual measurable or metric required to calculate the fuel tax amount paid in each state. This depends on the fuel rates in each state during each IFTA quarter.
Total Gallons Burned (in each state) x Fuel Tax Rate (for that state) = Fuel Tax Owed
Some states also have a surcharge tax, that can be calculated by -
Total Gallons Burned (in each state) x Surcharge Rate (for that state) = Surcharge Tax Owed.
V. Putting all together:
We can determine the amount of fuel tax paid for each purchase from fuel receipts or fuel withdrawal slips.
Things to remember while calculating IFTA
The formulas above skip certain aspects of IFTA reporting. Use them with discretion and be prepared to make adjustments, mostly once fuel tax rates are finalized by the end of every IFTA quarter.
Some of the essential elements you should remember when using the IFTA mileage calculator:
Taxable miles:
Your fleet's total taxable miles is usually the same as the unlimited miles driven in each region. But few jurisdictions allow mileage exceptions that do not count as taxable, such as fuel trip permit miles.
Taxable gallons consumed:
To calculate a vehicle's taxable gallons consumed, divide your total taxable miles by your overall fuel mileage. You can then subtract your total tax for paid gallons purchased to get your net taxable gallons.
Surcharges allow a state where fuel is purchased to keep a portion of the money regardless of where the power is used. Fleets should only buy the amount of energy they expect to use within jurisdictions where surcharges apply.
If your state has an online IFTA filing portal, you can enter the totals you got from tracking miles and adding purchases of fuel to the portal, and it will calculate your IFTA return and tell you what you owe.
If your state requires a paper filing, then you will need to enter the values from each of the six steps above into the appropriate places on the form they provided.
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