You have probably looked over your fuel tax report and in the past have noticed there was an extra tax on three different states, Kentucky, Virginia, and *Indiana. You might be wondering “what is this extra charge about!”.
How is it calculated? What is it used for? What is the difference between IFTA and a surcharge tax?
Well, knowledge is power. From what we have seen, there is a ton of information about filing fuel tax reports and not much about why these taxes even exist. Or, even the differences between them.
Sometimes it can even make you nervous looking at your report, if you don’t understand what you are looking at. You might even draw conclusions, maybe some of them incorrect.
We promise you that peace of mind comes from understanding.
First and foremost, a surcharge is an added fee or charge that is attached to an already existing tax. It is typically added because of some related characteristic to the first tax. For your trucking company, it is a tax added to support the cost of construction and maintenance of the roads.
The surcharge that you find on your fuel tax report is a tax not paid at the pump. You pay the surcharge tax later – when you file your IFTA quarterly return.
Essentially, the philosophy behind your fuel taxes is your heavy vehicle causes more damage to the roads than smaller vehicles. So, they added an additional tax that the state believes is fair, to pay the costs of damage from a heavy vehicle.
As we noted at the beginning of this article, the three states that charge fuel tax surcharges are: Indiana, Kentucky, and Virginia. However, *Indiana no longer has the motor carrier surcharge tax. It is now combined with the diesel tax at 48 cents per gallon (IN.GOV).
So, what is the difference between IFTA and a surcharge tax?
IFTA taxes are paid on fuel purchases. Taxes paid at the pump are allocated to different states based upon your consumption and miles driven. While your surcharge tax is only affected by the fuel consumed in that state.
Long ago, the government noticed that a heavier vehicle paid more for fuel than a regular passenger vehicle. A passenger vehicle would also not be as likely to drive the same amount throughout the country, across state lines. Since heavier vehicles do, some states were not given an appropriate amount for taxes to maintain their roads. Some states were pass-through, while others were more likely to be a destination or pickup. A considerable misallocation of fuel taxes was happening across the country!
Fuel use tax was created to try and help this problem.
But, this tax was found to be an enormous cost burden on interstate companies, since you had to contact each jurisdiction for a road permit before you were able to drive in the jurisdiction.
By the end of 1996, IFTA was in effect for 48 states and 10 Canadian provinces.
Now, you pay quarterly to your IFTA jurisdiction based on the amount of fuel purchased at the pump, dependent on the state, the state’s IFTA tax rate and the amount of fuel consumed. All based on the number of miles driven and your miles per gallon.
Certain states have additional taxes, such as highway use tax – NY
As for the fuel surcharge: you only pay taxes on the amount of fuel consumed. This will not affect your buying strategy as it does not affect the amount of fuel purchased. It only affects the amount of fuel burned in the states that have a surcharge added to their fuel tax rate.
If you want to avoid a fuel surcharge, you would have to change the route of your truck, not where you purchase your fuel.