United States: International Fuel Tax Agreement Proposed Amendments Would Change Audit Procedures And Program Compliance Peer Review

There are currently four proposals to amend the International Fuel Tax Agreement (IFTA), which are intended to promote an increase in compliance, promote uniformity in standards among member jurisdictions, and address changes in industry operations.1 In addition, the amendments have been proposed to better align IFTA standards with the processes and procedures of the International Registration Plan (IRP). Taxpayers in the transportation industry who are subject to IFTA and IRP standards should find these four proposed amendments important as the proposed amendments provide a significant update to processes and procedures that affect the industry's daily operations and regulatory compliance reporting.

Background

The IFTA is an agreed upon set of uniform tax laws, commonly considered to be part of motor fuels use taxation, which are imposed on transportation companies for interstate travel through two or more jurisdictions. IFTA is only imposed on qualifying vehicles, which are used to transport persons or property, have two axles and a registered gross vehicle weight exceeding 26,000 pounds, have three or more axles regardless of weight, or have a combination of axles and the combined registered gross vehicle weight exceeds 26,000 pounds. Member jurisdictions of IFTA include the continental United States and certain Canadian provinces. Alaska, Hawaii and the District of Columbia do not participate in IFTA.2 For taxpayers, IFTA allows for consistent reporting and procedures regarding licensing and registration, forms and filing requirements, tax rates and qualified motor vehicle requirements.

The IRP is a reciprocity agreement between the continental United States and certain Canadian provinces to facilitate commercial vehicle registration and promote the payment of license fees on the basis of fleet distance operated in various jurisdictions.3 Similar to IFTA, IRP allows motor carriers to operate on an inter-jurisdictional basis once they are properly registered with their base state and the fees are collected from the base state on behalf of other member jurisdictions in which the taxpayer operates.4

IFTA Full Track Preliminary Ballot Proposals

The proposed amendments are sponsored jointly by the IFTA Audit Committee and IFTA Program Compliance Review Committee and three of the four proposed amendments would be effective January 1, 2016, while the fourth proposed amendment would be effective immediately if passed.

Compliance Review Cycle

Full Track Preliminary Ballot Proposal (FTPBP) No. 1-2014 addresses detailed language issues with the IFTA guidance. This proposal would reduce the IFTA program compliance review cycle from five years to four years to promote increased efficiency in peer review, especially as IFTA utilizes four regions for each annual review cycle. Although combined IRP peer review cycles were encouraged in the past, the combined peer review cycles did not occur as anticipated. Accordingly, the proposed amendment seeks a quicker IFTA compliance review cycle to identify any issues for resolution in a more efficient manner. FTPBP No. 1-2014 would be effective January 1, 2016 if passed by vote.

Findings of Noncompliance

FTPBP No. 2-2014 addresses the increasing number of complaints from member jurisdictions or taxpayers for findings of noncompliance by member jurisdictions. This proposed amendment seeks to address noncompliance with IFTA guidance for member jurisdictions that are found not to communicate timely and accurate information to taxpayers, and member jurisdictions that are found not to audit IFTA on behalf of all member jurisdictions. If these forms of noncompliance are found, the proposed amendment would require the member jurisdiction to appear before the IFTA Program Compliance Review Committee (PCRC) to determine whether the case should be considered a deemed dispute or potential disciplinary measures recommended. In comparison to prior guidance, the proposed amendment broadens the process for bringing forth a potential dispute to the PCRC and places greater accountability on the member jurisdictions for meeting and complying with IFTA standards in the best interest of both taxpayers and other member jurisdictions. FTPBP No. 2-2014 would be effective immediately upon passage by vote.

Articles of Agreement, Audit Manual and Procedures Manual

FTPBP No. 3-2014 proposes changes to several major sections of the IFTA provisions, including the Articles of Agreement, Audit Manual and Procedures Manual. These changes are probably the most material and substantive to industry members and specifically address various member jurisdiction audit standards and taxpayer recordkeeping requirements. This proposed amendment would provide significant updates to authoritative audit guidance and allow for more flexibility in recordkeeping to account for advances in technology in recording mileage and fuel. In addition, the proposed amendment also seeks to align the IFTA recordkeeping requirements with the IRP recordkeeping requirements, which already have been updated for known technological advances in taxpayer records of mileage and fuel. The amendment is in response to taxpayers in the transportation industry placing an increased reliance on electronic devices and Global Positioning Systems (GPS) for recording mileage and fuel, which may differ in certain instances from mileage and fuel calculated by revenue departments using less advanced methods.

This proposal also would allow more flexibility for taxpayers in recordkeeping by allowing mileage and fuel records to be in any format considered acceptable for audit. Accordingly, the IFTA member jurisdictions could not impose a general penalty for deemed bad records. Instead, an audit would be conducted to the extent possible with the records sufficient for audit provided by the taxpayer. To maintain and provide sufficient audit records, a taxpayer would need to maintain a quantity and quality of records sufficient for audit purposes.

FTPBP No. 3-2014 also would clarify the language describing a licensee's responsibilities along with the member jurisdiction requirements for which licensees would be held accountable during IFTA Program Compliance Reviews. The Articles of Agreement would contain a single document to reference a licensee's responsibilities and the Audit Manual would only include mandatory member jurisdiction requirements while nonmandatory items would be included under Best Practices. Generally, these changes would provide taxpayers with greater insight on audit processes and expectations, while providing greater uniformity of audit standards among IFTA member jurisdictions. FTPBP No. 3- 2014 would be effective January 1, 2016 if passed by vote.

Satisfaction of Member Jurisdiction's Quota Requirements

FTPBP No. 4-2014 would provide a language change to clarify when an audit qualifies to satisfy a member jurisdiction's quota requirements. Under previous guidance, an audit was required to cover all calendar quarters that a license was in effect within a calendar year to count towards a jurisdiction's audit requirements. However, the proposed amendment seeks to provide that an audit requirement may be satisfied by allowing audits of less than four periods in a calendar year if that amount of time was in effect for a taxpayer in a calendar year. FTPBP No. 4-2014 would be effective January 1, 2016 if passed by vote.

Commentary

These proposed amendments would provide significant modifications for taxpayers in the transportation industry in an attempt to align processes, procedures, and guidance between IFTA and IRP to positively impact compliance in the transportation industry and to strengthen the relationship between the transportation industry and governing bodies of compliance. In addition, taxpayers would be allowed easier access to IFTA guidance and authoritative guidance would be better organized for taxpayer reference. The proposed amendments are available for public comment until June 12, 2014. After that date, the amendments will be discussed at the IFTA annual meeting in August and if further amendments are requested at the annual meeting, a second period for public comment will be available before a vote in the fall by IFTA membership.

Footnotes

1 The text of these proposals is available on the International Fuel Tax Association's Web site at www.iftach.org . This Web site also provides details of the IFTA as discussed below.

2 Id.

3 For details, see the International Registration Plan's Web site at www.irponline.org.

4 Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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