Updated October 2022.
Doing what I do for a living I get to see trends come and go in the truck transportation industry, specifically from front line people like drivers and owner operators. Certainly, we are in a time of belt-tightening, so owner operators and carriers alike are trying to find ways to save a buck. Fuel being such a big expense tends to top the list on money-saving ideas.
This past quarter my company saw a dramatic increase in fuel purchases done on Native Reserves and at Duty Free Shops. You might wonder why is this newsworthy, well it directly ties in with every carrier’s IFTA fuel tax liability at the end of the quarter. Generally speaking, a higher-than-normal tax liability, that, can have my customer gasp when they receive their IFTA fuel tax bill.
Another recent pitfall that developed this past year in 2022, is New York which has suspended state and sales tax. While this may seem beneficial it comes with the same pitfalls as Duty-free fuel as I will explain below.
IFTA or the International Fuel Tax Agreement is charged on a few key items:
-Where you traveled
-How far you traveled there
-How much fuel you bought and where
-And finally, your fuel efficiency or MPG/KPL.
Fuel is a key element as it does assume you purchased fuel with fuel taxes already charged. This means for every litre of fuel you buy in a given jurisdiction you have already pre-paid fuel taxes. If you buy fuel where taxes are not paid at the pump, IFTA charges you back those very taxes at the end of the quarter.
Here is an example, just one single trip Ontario-Illinois and back
So basically, the driver bought all his fuel in MI and because his fuel purchased had taxes paid his total IFTA bill for the trip is $17.55.
Now let’s look at this same trip and assume the driver stopped at the Ammex Duty Free Fuel and bought all his fuel there.
$62.00 more owed to IFTA at the end of the quarter, just one trip. Now start adding that up over the course of a quarter! How about over several trucks? It can be thousands of extra dollars!
But isn’t the price at the pump cheaper and therefore you save in the long run? Yes, it certainly can be cheaper but not always. I looked at www.michigangasprices.com at the time of writing this and found Ammex duty free was 5th on the list of cheapest fuel in the Detroit area. This means 4 other stations are cheaper still and have taxes included in the price of their fuel. The others on the list were not that far apart.
Remember included in the price of fuel is fuel taxes, for Michigan $0.30/gallon is fuel taxes. So, if fuel at the pump is $3.00/gallon you can take off the fuel tax for the end price of $2.70/gallon. This is something important to remember when shopping for fuel.
So, what does this all mean? Well, it means we have to be smart consumers. The price at pump isn’t always the full story. You must consider, is the price at Ammex Duty Free really cheaper once you deduct fuel taxes from the fuel station next door? Is the difference enough to warrant a higher IFTA fuel tax bill at the end of the quarter?
How does this apply to the 2022 New York fuel tax suspension?
Same as above, even though the state has removed the taxes, as a motor carrier you will still need to calculate how much fuel was purchased in the state of New York and will need to have the taxes calculated on that based on the chart provided (scroll down to the part “Motor Carrier questions on IFTA and fuel use tax).
What about Native Reserves?
In New York State, for example, there is a reserve quite close to the Ontario border and we have seen a significant increase in drivers buying fuel from there. While the receipt doesn’t state it, unlike those issued at Ammex Duty Free, we have confirmed, IFTA fuel taxes are not charged at the pump.
According to IFTA regulation all tax-free fuel must be recorded and used to calculate MPG (or KPL) but can not be used as credits for IFTA fuel taxes. If you choose to buy tax-free fuel you include it as fuel purchased but can not claim it under taxes paid.
If you want to avoid this happening you, here is a memo listing any known retail stores that are not paying NYS fuels or sales tax and, accordingly, any fuel purchased at one of these retail outlets is not NYS “tax-paid” fuel for the purpose of taking NYS fuels tax credits on an IFTA return.
NOTICE REGARDING FUEL PURCHASED ON NY INDIAN RESERVATIONS – 3-20-08
IFTA Audit now what
What happens if you pretend you never read this and treat all your fuel purchases as if they were all tax paid fuel? Not good during an audit. The auditor will disallow all such fuel purchases and charge you those IFTA taxes back, plus interest and plus penalty. This can add up to thousands of dollars!
The lesson, be a smart consumer and train your drivers to do the same. If you choose to save some hard-earned money at the pumps by buying tax-free fuel, be warned, your IFTA fuel taxes at the quarter will be much higher than you normally would have paid. To see if you actually saved money, calculate the cost of fuel plus the cost of your IFTA fuel tax paid at end of quarter. Is it worth it?
See our other post on saving money on fuel and IFTA Fuel Taxes for Canadian Carriers
We at Peter Suess Transportation Consultant Inc are always available to answer any questions you may have on this or any other trucking related subject. Please leave us a comment or question.