Episode 14: Understanding Fuel Taxes

Fuel taxes are an important element of your profitability. It is very important to understand this issue so you won't end up losing money by buying fuel in the wrong states.

IFTA Website with State Fuel Tax Rates

An overview:

Before IFTA-


Fuel taxes were collected by individual states. Trucks had to have fuel tax permits in each state, many having to display plates on their trucks for each state. Fuel had to be purchased in each state to cover the amount owed for traveling through that state.


After IFTA-


When a truck purchases fuel in a state, the amount of tax charged per gallon is credited to other licensee’s account. When the IFTA return is prepared quarterly, the number of miles driven in the period is divided by the number of gallons purchased. This establishes the truck’s fuel mileage for the time period and is used to factor the tax owed based on the number of gallons burned in each state it was operated in.


It's about gallons, not miles.


Fuel taxes are one of the most misunderstood elements of operating a truck in North America. It is a rather simple formula, but can be confusing because all the states have different rates, which affects the pump price. The truck operator that correctly understands how to buy fuel in the most efficient way will see a significant difference in their operating costs.


Wholesale Cost-


It is most important to understand that the WHOLESALE cost is the only factor consider when buying fuel. The pump price is completely irrelevant. What is the wholesale cost and how is it determined? The wholesale cost is the price of the fuel minus the IFTA fuel tax rate for that state. If the price paid for the fuel is $2.00 per gallon, and the IFTA rate is $0.30, then the wholesale cost is $1.70. There are states with rates as low as $0.175 per gallon (New Jersey) and others with a rate as high as $0.64 (Pennsylvania). This means that if the pump price of fuel in NJ and PA is the same, then there will be a difference of $0.465 per gallon!

Posted on June 18, 2016 .