Why do Canadians pay so much IFTA Fuel Tax when they buy fuel in the United States?
As fuel prices skyrocket I am getting this question more and more because traditionally fuel prices are cheaper in the United States as compared to most of Canada. As carriers and drivers buy more fuel in the US, they tend to see a lower refund on their quarterly IFTA return and all to often if they buy all of their fuel in the US, they owe money to IFTA.
Fuel prices in the US tend to be lower then up here in Canada. One of the reasons why is our taxes are higher through most of Canada. We have IFTA fuel taxes on our fuel and GST or HST depending on the province. The amount of money paid in fuel taxes when you buy fuel has a direct reflection to the amount you pay or get back from IFTA each quarter.
How are IFTA fuel taxes calculated?
Fuel taxes are based on a few simple calculations, the first two are where you drove and where you bought fuel. Next, we calculate your fuel economy and come up with a mpg or kpl. Using the fuel economy we determine how much fuel you consumed doing the mileage you drove in a given jurisdiction.
Lets say you do 8 mpg, and drove 100 miles in MI. You would have used 12.5 gallons of fuel or rounded up to 13 gallons.
IFTA will charge you taxes in MI for those 13 gallons of fuel. Fuel tax rate for the 4th quarter 2011 was $0.3610 /gallon. Multiply that by 13 you get $4.69 tax due for the state of MI.
A fuel efficiency meter. (Photo credit: Wikipedia)
Now if you bought most of your fuel in a state/province who has higher taxes your actually adding credits to your IFTA account that pay the taxes for the lessor jurisdictions. This often leads to a carrier getting an IFTA refund. An example of this would be a Toronto ON based carrier running into Detroit MI and back but buying most of their fuel in ON. They would get a credit back from IFTA
But if you buy your fuel in states with a cheaper tax rate then where your doing most of your mileage your not building enough credits in your account and actually end up paying more in IFTA at the end of the quarter. An example of this would be a Toronto ON based carrier running into Detroit MI and back but buying most of their fuel in MI. They would pay money to IFTA.
I ran the above Toronto to Detroit trip 20 times to give the following numbers.
Case 1
Miles in ON 9520
Miles in MI 360
MPG 8 with 1235 gallons of fuel consumed.
Using this I ran two IFTA reports one where all the fuel was bought in ON and one where all the fuel was bought in MI. Here is the results.
IFTA Report 1 – carrier gains a credit as fuel was purchased in a higher taxed jurisdiction.
- ON purchased fuel IFTA Credit $ -7.25 (ON IFTA tax is $0.5469/gallon)
IFTA Report 2 – carrier pays out to IFTA because fuel was purchased in a lower taxed jurisdiction.
- MI purchased fuel IFTA Payable $191.95 (MI IFTA tax is $0.3610/ gallon)
Now lets do another exercise, switching the mileages so you do more mileage in the US and less in Canada which is typical for most Canadian carriers.
Case 2
Miles in MI 9520
Miles in ON 360
MPG 8 with 1235 gallons of fuel consumed.
IFTA Report 1 – carrier gains a credit as fuel was purchased in a higher taxed jurisdiction.
- ON purchased fuel IFTA Credit $ -191.95 (ON IFTA tax is $0.5469/gallon)
IFTA Report 2 – carrier pays out to IFTA because fuel was purchased in a lower taxed jurisdiction.
- MI purchased fuel IFTA Payable $7.25 (MI IFTA tax is $0.3610/ gallon)
See how changing the numbers around make dramatic changes to amounts due. Case 2 is actually a more real representation of a typical Canada based carrier running the US. More mileage is often reported in US states which in turn have far less taxes. Buying most of the fuel in the US doesn’t accrue the higher fuel tax credits which ultimately means you end up owing money for the mileage traveled in Canada. This is why you pay more at the end of the quarter.
Diesel taxes per state
So there you have it why you paid more to IFTA. Don’t forget though, how much you pay or get back from IFTA is not the end of the story. What you really want to know is how you can save money in the end. Fuel has to be looked in the full picture, from how much you pay at the pump to what you pay in IFTA fuel taxes. As well for us Canadians what we get back as tax credits and what the current exchange rate is. All that combined is the true cost of fuel.
Finally, the less fuel you need to purchase the less tax you pay. Make it a priority to train drivers to drive fuel efficiently and make sure the equipment is properly maintained. Certainly, reduce idling! I am sad to report that despite high fuel prices I still see trucks idling away with no one in them, sometimes for hours. That is zero miles per gallon, zero revenue being generated and higher taxes and maintenance bills. Finally, slow down, speeding kills; your fuel economy, your insurance, your pocket book, your safety rating and not to mention people.
As always we are happy to address any concerns or questions related to this or any other topic. Feel free to get in touch or leave a comment.
