It’s easy to become so focused on the price at the pump that you lose track of the real cost of fuel; the price at the pump minus the taxes. Savvy owner-operators know there are ways to save money on the fuel they buy, but also on the fuel taxes they pay. Understanding your carrier’s fuel tax policy is the key, so you can buy diesel in the least expensive states for you.
 
Calculating the real cost of fuel.

Every state assesses a per-gallon fuel tax. According to the International Fuel Tax Agreement (IFTA), each state gets its share of taxes based on the number of miles truck drivers run in a state.
 
Every state assesses a per-gallon fuel tax, ranging from 15 cents a gallon in some states to more than 30 cents a gallon in others. If you’re not careful about where you buy fuel, you can easily overspend around $1,000 a year or more in lost revenue and taxes. Daily state-by-state fuel prices and fuel tax listings are available through websites such as eTrucker.com. The information can also be found in fuel tax software programs and in motor carrier atlases, such as those published by Rand McNally.
 
So is paying diesel tax at the pump plus a quarterly diesel tax a double taxation? No. The quarterly payment, or credit, is designed to resolve any underpayments or overpayments of fuel tax in states where you’ve driven.

Calculating the Cheapest Fuel
 
How does fuel tax work?

According to the International Fuel Tax Agreement (IFTA), each state gets its share of taxes based on the number of miles truck drivers run in a state. For example, if you run 100 miles in Colorado and your truck gets 5.9 mpg, you pay tax on 16.9 gallons of fuel used in Colorado. Colorado then bills your home state, which bills you. But if you buy more fuel in Colorado than your mileage requires, Colorado refunds your state, which in turn refunds you. This isn’t a big issue if you only run in a few states, but if you run in many states, varying fuel tax rates can mean hundreds of dollars added or subtracted to your bottom line.
 
Some carriers pay fuel taxes and charge them back to their leased owner-operators. Other companies pay the tax and absorb the cost. If your company pays the tax and doesn’t charge you, simply do the obvious thing and buy fuel where the pump price is lowest. But if you have to pay the tax, make sure the system works to your advantage by considering state fuel taxes every time you buy fuel. Know the current fuel tax rates, both federal and state, and any state surcharges. Subtract taxes to find the raw fuel cost in each state, and then buy where the net cost of fuel is the cheapest. This strategy means you buy without regard for whether you are paying more at the pump, or in taxes at the end of the quarter.
 
Whether you pay at the pump or quarterly, your taxes are the same since the IFTA distributes your taxes according to the miles run in each state.
 
What about fuel surcharges?

IFTA figures in state surcharges, which complicates the fuel-buying strategy. Some states have per-gallon surcharges and some also have per-mile surcharges. Click here for the list of fuel surcharge states.
 
While some owner-operators believe in only buying enough fuel to get through the surcharge states, this practice can backfire, depending on the actual cost of fuel in each state. There may be times when buying more fuel in a surcharge state is more economical.
 
Changing surcharges and taxes.

Being fuel smart can be challenging because you have to keep up with changing surcharges and taxes. To stay up-to-date with these ongoing changes, check the International Fuel Tax Association’s website – they update their information quarterly.
 
Other fuel buying costs.

Other fuel costs depend on how your fuel taxes are managed. Most leased owner-operators depend on a carrier to collect and distribute fuel taxes. Some carriers charge a fee for this and some pay by averaging the mileage of their entire fleet. If your carrier does this, you could be paying more tax than you owe.
 
A good lease will itemize all charges, including fuel taxes and how they are assessed, but other leases make a blanket statement on fees. If your settlements do not reflect what is stated in the lease, you can ask for clarification and look for another method of paying your tax if necessary. However, not all carriers will let you opt out of their system. You must get your own IFTA account to do your own fuel tax reporting, whether you do it yourself or through a third party. Independent owner-operators must have an IFTA account in their base plate state and be responsible for quarterly reporting.
 
You can use knowledge of state fuel taxes to smooth your cash flow and avoid paying surcharges or large tax bills. Good fuel tax management, combined with trip planning that incorporates the smartest stops for buying fuel, can help maximize your fuel dollars and increase your profits.

Image Source - https://www.flickr.com/photos/rheinitz/

Comments (11)

Chris Harrington

I have been in the trucking Industry for more than two decades. I have experience as a truck driver and in addition, have also been employed as a Freight Broker and have experience managing a fleet of trucks. I have been with ATBS since September 2001 and was one of the first employees of the company, watching it grow from just a few clients to the thousands we assist today. In my free time, I enjoy motorcycle riding, skiing and spending time with friends and family.

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Thanks, Chris. Your article is very helpful and informative, and you drew some very helpful and informative comments, as well.

December 21, 2015 18:04:06 PM

If I understand this correctly, some States distribute less than they collect. If you fuel in a state that collects .40, they will apply it to the mileage in their state , but any excess may only get distributed at a rate of say .25.

December 14, 2014 8:54:55 AM

HUM...DECISION,DECISION,DECISION......

October 27, 2014 19:08:08 PM

Keep moving the bar up Don.

October 13, 2014 6:05:31 AM

Keep moving the bar up Don.

October 13, 2014 6:04:57 AM

Well, I got a message from my Ifta state office that I should be averaging 4-8 mpg max, guy said to check my figures. I have to call him tomorrow to tell him I now have a new '15 evolution, and my mpg will actually go up some more next qtr, as I had miles in my old truck last qtr. I will suggest they look at Albert's blog here to see what is now possible, and I'm not fibbing or making a mistake.

October 07, 2014 0:17:18 AM

Very good article ... Thank you Linda for the example

October 06, 2014 8:16:13 AM

its hard to get this information to drivers when what we are looking for is the closest bottom line, ie., payday! waiting for the quarterly "payback" or credits on taxes is taxing for most of us!

October 05, 2014 17:10:15 PM

To take it one more degree, if you no how biodiesel effects your truck and mileage, the varying percentage of biodiesel in a specific state vs. another can be a factor.

October 02, 2014 16:37:17 PM

Great breakdown Linda. Understanding this concept can save a driver a large amount of money over a year.

September 29, 2014 8:45:03 AM

We pay our own fuel tax and here is an example of what to look for:

Pump Price in state A 3.80
Pump Price in state B 3.90

You would think to buy fuel in state B but when looking at the fuel taxes you would change your mind:

Fuel Tax State A is .20
Fuel Tax State B is .45

Actual cost of fuel in state A is 3.60
Actual cost of fuel in state B is 3.45

So to get the most fuel we will buy fuel in state B

September 27, 2014 7:12:54 AM