Several Pennsylvania appellate court decisions in recent years have made it more important than ever for IFTA licensees to strictly comply with IFTA documentation requirements. The fact that a company actually pays taxes on all of the fuel that it purchases at retail stations and/or dispenses from bulk fuel tank(s) will not preclude a substantial audit liability if proper records are not maintained. While there are still some arguments available to contest an IFTA audit determination, it has become more difficult to obtain favorable settlements of IFTA audit liabilities through the appeals process for companies with less than stellar records since these decisions were issued.

In R & R Express v. Commonwealth, 37 A.3d 46 (Pa. Cmwlth. 2012), aff’d per curiam, 65 A.3d 900 (Pa. 2013), the court upheld an IFTA audit liability of over $300,000, plus interest, against a brokerage company that failed to strictly comply with IFTA documentation requirements, in part because its owner/operators did not consistently turn in trip reports and fuel receipts for their activity. In addition to disallowing credit for tax paid on all fuel purchases that were not properly documented, the auditor imposed the statutory 4.0 m.p.g. factor for vehicles with incomplete records. The court rejected the company’s argument that the audit deficiency should be stricken because it had already paid tax on all fuel used in its motor carrier operations at the time of purchase. The court also rejected the company’s request to have its tax for the audit period recomputed based on data for reporting periods subsequent to the audit period because its recordkeeping procedures had improved after the audit. While the court expressed “sympathy” for the taxpayer’s plight, it ruled that strict compliance with IFTA reporting standards is required.

In another recent decision, the court ruled that IFTA licensees are not entitled to interest on tax overpayments found during an audit for one or more jurisdictions, even though interest is owed to jurisdictions in which tax was underpaid. See Southern Pines Trucking v. Commonwealth, 42 A.3d 1222 (Pa. Cmwlth. 2012), affirmed per curiam, 69 A.3d 235 (Pa. 2013). Under IFTA, when a motor carrier’s base state conducts an audit, it is required to determine the carrier’s reporting compliance for every member jurisdiction in which the carrier travels. IFTA Article R1230 specifically mandates that the amount of interest due be calculated separately for each jurisdiction. Finally, in Senex Explosives, Inc. v. Commonwealth, 58 A.3d 131 (Pa. Cmwlth. 2012), aff’d per curiam, 91 A.3d 101 (Pa. 2014), the court extended the rationale of R & R Express to bulk fuel purchases. That is, credit for tax paid on purchases of bulk fuel was disallowed because the taxpayer did not maintain sufficient records to show the amount of fuel dispensed from its bulk tank(s) into individual vehicles.

In addition to keeping proper mileage and fuel records, IFTA licensees should notify the Department’s Bureau of Motor Fuel Taxes of any changes to their account. If the Department is not timely notified when a vehicle to which IFTA decals have been affixed is sold, traded or otherwise disposed of, or passes from the carrier’s control through a lease, the Department takes the position that tax liability remains with the licensee until the Bureau receives proper notification of disposition or loss of control of the licensed vehicle(s). Carriers are also advised to retain all purchased, but unused, decals for at least four years for auditing purposes. In the event of an IFTA audit, a company that disposes of unused IFTA decals will likely be assessed tax for each decal that is unaccounted for (e.g., based on the average activity of its fleet).

IFTA compliance requirements are set forth in the “PA International Fuel Tax Agreement and Motor Carriers Road Tax Compliance Manual” published by the Department of Revenue. Compliance requirements also are discussed in a white paper titled “International Fuel Tax Agreement Compliance Tips,” which is available on the McNees website.