March 11, 2025
Navigating Fuel Tax
By Danny Siem, PacLease Fuel Tax Manager
Navigating fuel taxes can be overwhelming for business owners or fleet managers. If you have a third-party preparer handling your fuel taxes, that's great. To ensure your company capitalizes on potential fuel tax credits, your tax preparer may ask specific questions. Understanding these questions can help you communicate effectively.
Common questions include:
- Do you have additional fuel records for units?
- Can you confirm the total fuel amount received this quarter?
- Have all driver submissions been provided?
- Are there any discrepancies in the fuel records?
- Do you have receipts or documentation for fuel purchases?
- Can you provide mileage logs for the units?
- Are there any changes to your fleet or operations affecting fuel tax calculations?
These questions help fuel tax preparers gather necessary information for accurate reporting and maximizing potential credits.
What story can Miles Per Gallon (MPG) tell?
Understanding your units' MPG can reveal interesting insights. For instance, is your business involved in construction or long hauling? Are your drivers leaving units idling extended periods?
If your units' MPG is too high or low, check for discrepancies in the records. A truck showing 27.1 MPG (High) may suggest not enough fuel receipts have been recorded. A truck displaying 1.2 MPG (Low) could indicate excessive fuel records. Low MPG can be plausible if the truck is idling, which is often the case for cement trucks, refrigeration trucks, or other trucks requiring the engine to run the power attached equipment.
As a third-party fuel tax preparer, I often connect with my customers to share insights based on my observations. For example, I learned that one customer operates a construction company with some units equipped with cement mixers and others serving as supply haulers. This knowledge enables me to have more informed conversations with my customers, especially if there are fluctuations in usage from month to month.
Why do I have to pay more fuel taxes?
Once Driver Trip Records are collected and processed, customers often ask, “Why do we have to pay additional fuel taxes?” or “Aren’t the records we submitted sufficient?”
The days of manually calculating International Fuel Tax Association (IFTA) filings are in the past. Fuel tax preparers like PacTax use software to capture, compile, and compute IFTA filings for hundreds, if not thousands, of units and different customers. One section often overlooked on an IFTA filing is Consumed versus Purchased fuel. It’s a simple comparison: the number of gallons of fuel captured for the unit compared to the estimated number of gallons consumed based on IFTA’s recommended calculation. The difference determines if additional taxes are owed or possibly a credit for the current period.
While we can explore other factors affecting taxes, it’s highly recommended to work with your fuel tax preparer. They can help identify ways to better inform your fleet or customers about fuel taxes.
Some suggestions include:
- Have a plan with drivers regarding when they should refuel.
- Should units be refueled when entering or exiting a state?
- Should units be refueled once a day; every morning or evening?
- Should units be refueled once it reaches a certain level.
- Treat additional IFTA taxes as a cost of doing business.
- If you have an on-site fueling tank, accurately track the amount of fuel dispensed to each unit.
- Analyze the routes drivers are taking to identify opportunities to minimize mileage in high-tax states.
Taxes can be confusing, especially fuel taxes. IFTA has made it easier for drivers, fleet owners, and others that prepare fuel tax filings. Consider working with a fuel tax preparer like PacTax to explore ways to enhance your business’s efficiency.
Learn how PacLease helps commercial fleets manage fuel tax compliance, with PacTax fuel tax reporting.
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