Sending Out an SOS – Don’t Let An Audit Sink You

It was a 105 years ago that the RMS Titanic struck an iceberg and sank in the North Atlantic, sending more than 1,500 people to their doom.

The ship was state-of-the-art at the time, with a double bottom and 15 watertight compartments.

But we all know how this movie ends. Below the surface, the iceberg cut a 300-foot gash in the hull. Several compartments filled up and, as the bow pitched downward, seawater spilled over top of the bulkheads and flooded the ship. Within three hours, Titanic slipped beneath the sea—leaving Leonardo DiCaprio and Kate Winslet bobbing around in the icy water.

To me, the most amazing thing isn’t the hull’s fatal design flaw. It’s the fact that there were only enough lifeboats for 1,178 people, about one-third of Titanic’s total capacity.

Simple math, common sense, and more lifeboats could have averted disaster.

For truck fleets, there are regulatory icebergs everywhere you go and sometimes you can’t avoid them. When you scraped their side, your survival depends on math, common sense, and a lifeboat.

Let’s look at fuel taxes and IFTA reporting.

Do you ever sit down and think about how much fuel tax you actually pay in a month or a year? Let me tell you, it’s a boatload.

Let me give you a couple of examples.

Company A is an oilfield services. Last year on 59 pieces of equipment it paid $166,248.16 in fuel taxes—$2,817.77 per unit per year and $234.81 per unit per month.

To give you some context, that works out to about 24 cents per mile travelled and about 14 cents per km travelled. This carrier would burn a lot of fuel off-road but with IFTA it doesn’t matter. Since Alberta did away with their off-road rebate program back in 2011, all fuel in an IFTA-qualified vehicle is taxable regardless of whether it is on-road or off-road.

Company B is a cattle hauler that travels the three Western provinces plus Washington, Idaho, and Montana. On four trucks last year he paid $30,269.46. That means that for every kilometer he hauled those little dogies, he paid 7 cents per kilometer in fuel tax.

No audit situation is ever the same because no two carriers are ever the same.

Think about the company that paid $166,248.16 for tax. For arguments sake, let’s say they were missing some fuel receipts or had underreported distance and the error factor ended up at 10%. That could equate to $16,624.82 for a single year and quite possibly multiply that by three years for a total of just under $50,000.

Now that’s a disaster of Titanic proportions to any company.

If the same thing happened to the cattle hauler, he’d be paying just over $9,000 in additional tax. Worse yet, it would be like paying the tax twice and who wants to pay the government more tax than you have to?

It isn’t enough to just look at your IFTA return and think that because you got a credit you paid less fuel tax. If you have a credit, you bought fuel in high-tax jurisdictions and consumed it in lower-tax jurisdictions. The same is true if you owe money at the end of the quarter. All that means is that you bought fuel in low-tax jurisdictions and consumed it in high-tax jurisdictions. You still paid the same amount of tax whether you pay it at the pump or you pay it when you file your IFTA return.

You will always pay the same amount of tax regardless of where you buy the fuel. There are some tips about how to know when the fuel is the cheapest, but that’s another column for another month.

You are the captain of your own ship and with fuel tax you have to make sure the math adds up—and call for help when it doesn’t. Otherwise you can end up like Leonardo, shivering and unable to hold on in the middle of the ocean, with rescuers too far away to make a difference.

Worse yet, I’ve never met an auditor who looked anything like Kate Winslet.

Wondering if you are ready to weather an Audit Storm? Take our IFTA Knowledge Challenge. Getting any one of the questions wrong could mean big problems down the road with an audit. The effects of not understanding IFTA basics are cumulative across IRP and other tax programs as well as IFTA.

Click Here to Take the IFTA Knowledge Challenge

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