How to Create a Winning Fuel Tax Formula

How to Create a Winning Fuel Tax Formula

By Ronald Novrit
President, Ronald Novrit Transportation Consultants, Inc.

The first thing that carriers ask me when we meet is “tell us how we can save money on our fuel taxes?” My first question to them is always how much effort do you as a company put into your fuel tax reporting program, and who in upper management is responsible for overseeing the process?

Step 1. To create a winning fuel tax formula, is to give the process as much attention as you would to paying your Income Taxes. Most carriers push fuel tax processing tasks down to the lowest person on the company totem pole, or worse contract the work out to one of the cheap fuel tax reporting firms that ship the paperwork overseas for processing. In effect you are putting thousands of dollars of hard earned revenue in the hands of people that have the least personal interest in protecting your company interests.

Step 2. Create a data collection process that ensures that each and every mile is accounted for. In fuel tax size matters, and size means miles. Most carriers think the best way to save fuel tax revenue is by shaving miles on their runs. I will demonstrate that the opposite is true. Many carriers have no method to record mileage for spotting trailers, pickups, drayage, or maintenance, etc. Lastly, many carriers that use computerized dispatch tax reporting programs, use the shortest possible route for fuel tax reporting purposes, instead of the most practical route.

What cutting their tax reported mileage does is shrink their fleet MPG for tax reporting purposes. Thereby, increasing the number of gallons used in relation to the miles reported on their fuel tax returns. More gallons used equals more fuel tax due.

Quarterly fuel tax payments are made on fuel NOT PURCHASED to cover miles operated in a particular state. So the more miles that a carrier can operate a truck on a gallon of fuel will mean higher MPG, and less fuel used for the taxable mileage reported. This will directly mean less tax paid at the end of the quarter. Most of the local non-reported miles tend to be in the carriers home state, or states where terminals are domiciled. Due to this they usually buy more fuel than needed to cover those operations. The result is that they build up excess tax credits in those states that are used to offset states that have additional fuel tax due. By capturing the lost miles that I mentioned where they have facilities domiciled, they are raising fleet MPG and cutting fuel taxes without lifting a finger. Try the math and see how much can be saved by raising the MPG for your fleet by capturing these lost unreported miles.

Step 3. Ensure that all fuel purchased is collected and accounted for. This is the credit gallons that will be deducted from the taxable gallons. IFTA has very specific regulations as to the information required on fuel receipts. Make sure that the fuel receipts that your drivers turn in comply with the IFTA regulations. The same information is required for trucks being fueled from fuel tanks in the company yard or from fueling services. A little hands on management will ensure that the fuel credits that are claimed are not rejected by an auditor, costing back taxes, penalty, and interest due.

Many companies use owner operators and small fleet owners to haul their freight. If you are paying their fuel taxes make sure that you collect their fuel receipts when they turn in the paperwork for each load. Do not assume that you can collect them at some future date when you get audited because they may be long gone by then.

Step 4. Leased truck fleets from the large national leasing companies have fuel tax reporting provisions written in the lease. The carrier has the option of paying the fuel taxes, or you can let them handle it. Read the lease carefully make sure that you know which party is responsible for paying the quarterly fuel taxes. If the leasing company is paying and filing the fuel taxes on the trucks, they will be charging you an annual fee built into the lease for that service. You will be required to send them mileage and fuel receipts monthly for tax reporting purposes. If this data is not sent to them for tax reporting purposes, they usually bill the carrier a mileage based fee to cover taxes due that has no offsetting fuel purchase credit. This can be a very expensive lesson.

Making fuel tax reporting a high profile issue, along with good record keeping and proactive management are the keys to saving fuel tax revenue. Do it right the first time and save.

Top 10 Biggest Mistakes That I have Seen Carriers do to Save Fuel Tax Revenue

  1. Report only half of the trucks in their fleet and take credit for 100% of the fuel purchased.
  2. Purchase IFTA fuel permits for owner operators in their company name, then claim that the owner operators are filing their own fuel taxes.
  3. Leasing a fleet of trucks, then claiming when audited they thought the leasing company was going to pay the fuel taxes.
  4. Overpaying fuel tax based upon a small portion of their fleet, hoping auditors will think that they are trying to do the right thing.
  5. Create a special deal for a small fleet owner, usually a manager with the company that the company will not put his trucks in the fuel tax pool.
  6. Claim that unreported miles were ” personal miles “. There is no tax provision for personal or commuting miles. All mileage is factored into fuel tax reporting.
  7. Systematically not reporting operations for the first week of the first month and last week of the last month of the tax quarter.
  8. Operating all over the country but only reporting operations and fuel purchases in New Jersey on the IFTA tax return. When completing the fleet IRP license plate renewal application, all states are listed, creating a glaring audit conflict.
  9. Reporting only every other trip on a regular basis.
  10. Paying fuel tax only on loaded miles operated.