The Tax-Efficient Truck Fleet

I wrote an article for Supply Chain Management Review earlier this year called the Tax Efficient Supply Chain.  If you have a North American based private fleet, part of having a tax efficient supply chain is making sure you don’t overpay on your International Fuel Tax Agreement (IFTA) taxes. 

IFTA is an agreement among all states (except Alaska and Hawaii) and Canadian provinces (except Nunavut and Yukon) to simplify the reporting of fuel used by motor carriers operating in multiple jurisdictions.  The core idea is that if I have a heavy truck that crosses roads in multiple states, then a portion of the fuel tax I pay in my state needs to go to the other states to compensate them for road wear and tear.  Therefore, fleet operators need to record the mileage each truck travels in each state, and the fuel taxes they pay in each state.  The various states then share these tax revenues based on the mileage traveled in the different jurisdictions.

This can be an onerous administrative task.  If you have a fleet of over 50 trucks, there is a good chance you have one person, perhaps making $40,000 annually, focused solely on this paper-intensive task.  But the process can be automated if a company uses GPS/telematics devices in its trucks, along with fuel cards and IFTA tax reporting software (or a tax service provider that uses this kind of software).  Then the mileage driven in each state and fuel expenditures for a particular vehicle can be automatically loaded into the software and the proper IFTA reports can be printed.  The process becomes much less paper intensive.  While a fleet operator would probably never buy a telematics solution solely to eliminate a clerical position, it can contribute to the ROI offered by telematics solutions.

Many fleets, however, are leaving money on the table in the form of unclaimed tax rebates.  If a truck is jockeying around the warehouse yard, for example, or fuel is being used to power an auxiliary power unit (APU), usually for in-cab heating, or a power take-off unit (PTO), which provides power to an attachment, like a cherry picker, then that truck is not tearing up a state’s roads for that portion of the fuel budget.  Some states recognize this reasoning and offer tax credits for non-highway usage.  These credits, and the necessary supporting documentation, differ state by state.  To get these rebates, a company is advised to use a tax consulting firm with expertise in truck fleet taxes.  The company needs to sign a form authorizing its telematics and fuel card provider to release the required data to the tax consultant.    

To better understand the process, I talked to Deena Ahaus Lewis, the VP of Tax Recovery at NECS, a tax consulting firm.  NECS runs a separate software program specific to each of its customers.  NECS works with GPS providers to understand what kinds of data they can provide and then the company imports that data into the software.  Inputs include vehicle identification, miles traveled, the location of the travel, and APU/PTO trigger events, which are married to idling alerts to prove the truck was not moving.  This is then linked to the fuel card data for gallons purchased by state and gallons consumed in each state. 

Fleet operators need to know that they cannot take a GPS unit off one truck and put it in another.  This messes up the data trail.

Many APUs and PTOs use fuel from the same tank the engine uses.  In this case, NECS needs to do studies of the equipment and the fuel.  The company takes a sample, computes the metrics, shares those numbers with the state, and obtains approval on a state-by-state basis.  Deena tells me that in-line fuel usage sensors are starting to emerge.  If these become more common, and the data from these sensors is approved by the states, it could eliminate the need for these special studies. 

Once all the necessary information is acquired, the tax consultant files the rebate forms with the various states, which can be done electronically in some states but not all.  NECS has an in-house research staff that keeps track of changing state-by-state requirements in this area.  At the end of it all, the customer gets a rebate.

Tax rebates, if they don’t require a high level of effort, are a wonderful thing.  It is found money.

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