Alternative Fuels and IFTA – 2008 IFTA Annual Business Meeting

Alternative Fuels Committee

Alternative Fuels Committee (AFC)

COMMITTEE MEMBERS: Kim Craig – Ontario Ministry of Revenue (Committee Chair)

Fred Alleman - Audit Committee, Pennsylvania Department of Revenue Don Boswell – Law Enforcement Committee, Virginia Department of Motor Vehicles Donna Burch – Industry Advisory Committee, Ryder Transportation Services Meg Cronk – Agreement Procedures Committee, New York Department of Taxation & Finance Gary Frohlick – ex-officio Board Member, Saskatchewan Finance Garry Hinkley – Clearinghouse Committee, Maine Bureau of Motor Vehicles Mark Osbaldeston – Attorneys Section Committee, Ontario Ministry of Revenue Robert Pitcher – Industry Advisory Committee, American Trucking Association Patricia Platt – Program Compliance Review Committee, Kansas Department of Revenue Jan Skouby – Dispute Resolution Committee, Missouri Motor Carrier Services Bill Staples – Dispute Resolution Committee, New Brunswick Department of Finance

BOARD LiAISONS

Scott Bryer Andrew Foster Sheila Rowan

IFTA, Inc. ADVISORS Lonette Turner Jessica Eubanks

History

In 2005 membership resolution ratified Several jurisdictions introduced exemptions and reduced tax

rates on blends of biodiesel. January 2007- AFC formed with representation from each IFTA

committee Spring 2007- AFC conducted survey At the 2007 ABM presented results from survey and received

support to move forward with: – developing an Alternative Fuels Database on the IFTA, Inc.

website– drafting ballots that incorporated the intent of the membership

resolution into the Agreement and the feedback from the survey

Conclusions from survey results

Incentives exist in several jurisdictions and more to come Several jurisdictions offer incentives without effecting IFTA

administration. Majority(70%) of jurisdictions want detailed information on

incentives offered by other jurisdictions. Split on whether fuel types:

– should be covered by the Agreement– being added to the tax rate matrix require a membership vote

Majority (76%) of jurisdictions want alternative fuels to be handled in accordance with R830 as stated in the membership resolution.

ALTERNATIVE FUELS SURVEY

Conclusions from survey results

How should blended/interchangeable fuels (biodiesel/diesel, gas/ethanol) be reported for IFTA?

– Reported as diesel or gas and contact jurisdictions re: R830/refund– In accordance with membership resolution– Reported as the main/predominant fuel type purchased or higher

tax rate– Reported on return– Jurisdiction indicate how it is taxed– Diesel engine=diesel fuel/ gasoline engines= gasoline– Separate line item on the IFTA return– Excluded from IFTA – can’t effectively report interchangeable fuels– Blends with diesel reported/taxed as diesel; blends with gas

reported/taxed as gas

Ballot #6-2008 - Comments

29 in favour:– Affords times to report applicable changes for new motor

fuel types– Proposed in response to the survey conducted by AFC,

during which majority requested more timely notification– Many IFTA processing systems require more time for an IT

change to their system.

Ballot #6-2008 - Comments

5 undecided/4 opposed:– Jurisdictions required to collect fuel taxes for unlimited

number of new tax types– Need to define “new motor fuel type”– Timeframe may be tight due to other IT initiatives– Additional information and discussion needed– Will there be different tax rate for differing blends of biodiesel

(B-5, B-10, B-15…..)?

Ballot #6 - Revisions

R239 “motor fuel” is defined ‘Motor fuel type’ currently used in Procedures

Manual & Audit Manual Revised to include reference to “tax matrix” rather

than define “motor fuel type”

FTPBP#6-2008

Ballot #7-2008 - Comments

19 in favor:– Removes the incentive for carriers to underreport usage in

other jurisdictions (i.e. NY method which reduces tax paid credits)

– Helpful in clarifying reporting procedures– A single tax rate – are carriers not reporting this way

currently?– Single tax rate equal to special fuel; consistent with tax

policy of majority of jurisdictions.

Ballot #7-2008 - Comments

5 undecided:– Support the concept, but concerned about the possible

effects of the reporting aspect– Want to hear dialogue at ABM

Ballot #7-2008 - Comments

14 opposed:– Creation of adjustments on IFTA return unacceptable– Unclear as to how blended product will be reported – a

separate schedule?– Results in carriers receiving credit for tax that was not paid– Undermines uniformity in IFTA returns– Interferes with a jurisdiction’s ability to set tax rates

Ballot Context:

Emerging alternative fuels industry 2005 membership resolution Introduction of tax rate incentives for biofuels Industry appeal for uniformity Impossible to report the use of interchangeable fuel

with complete precision under IFTA Potential for further undermining of base jurisdiction

reporting model

Ballot Intent:

Explicitly:“To include a definition of “blended fuel”, set out reporting requirements for blended fuels and to allow the base jurisdiction to provide adjustments where there is an exemption for different tax rates for a blended fuel”

Implicitly: Respects the terms of the 2005 membership resolution Respects the autonomy of jurisdictions relative to tax policy and

in so doing anticipates the inevitability of administrative measures to fulfill objectives under IFTA

Option 1:

1. Withdraw Ballot:Pros:– Refer to AFC for additional study– Resubmit with revisions

Cons:– Risk of lost momentum/opportunity (knowledge assets)– Risk perception that issues cannot be addressed – Extension of status quo which has been identified by

membership as a pressing concern– Effort abandoned

Option 2:

2. Proceed with Revisions:Pros:– Confidence level that concerns can be addressed– Opportunity to establish foundation for future

enhancements

Cons:– Subject matter is complicated– Elevated risk to subsequent attempt, in event of non-

supporting vote.

Option 3:

3. Status Quo (effort abandoned):Pros:– Allow for self-correcting of problems (POS incentives

phase out)

Cons:– Inadequacy of IFTA to address present challenge of

alternative fuel (perceived and real)– Potential for the problem to expand– Erosion of IFTA

Determining the Course of Action:

Facts: As written, this ballot will not succeed In absence of acceptable revisions, the choice is

between Options 1 and 3.

Challenge: Can revisions be made to satisfy a majority of

the membership so that the Ballot can continue?

FTPBP#7-2008

Example:Let’s assume a NY taxpayer had the following IFTA activity during the 2Q2008: Gallons of B20 purchased in NY 1,000 Gallons of diesel purchased in NY other than B20 18,000Gallons of diesel purchased outside of NY 21,000 Total gallons of diesel purchased 40,000

Total IFTA miles 200,000 Total non-IFTA miles 0 Total miles 200,000

Taxable miles in New York 3,000

The Case of New York: Consumption of B20 in NYS by a NY based IFTA taxpayer

STEP 1 – CALCULATE MPG

Total miles 200,000

Divide by total gallons of diesel 40,000

Average fleet MPG for diesel 5

CALCULATE TAXABLE GALLONS USED IN NY –

Taxable miles in New York divided by diesel average fleet MPG:

3,000/5 = 600 taxable gallons

STEP 2 - IS B20 PURCHASED IN NY GREATER

THAN NY TAXABLE GALLONS?

Gallons of B20 purchased in NY 1,000Taxable gallons for NY -

600Excess gallons of B20 purchased in NY

400

Since the B20 gallons purchased is greater then taxable NY gallons, the taxpayer

must go to Step 3

STEP 3 – COMPUTE TAX-PAID GALLONS FOR NY

Excess of B20 (from step 2) 400B20 adjustment percentage x 80%Adjusted B20 gallons 320Other diesel gallons purchased in NY 18,000Taxable NY gallons 600Tax paid gallons to be entered on the 18,920taxpayers IFTA tax return for NY

Assessing Option #2 - Possible Revisions:

1. R945.100 – Reporting:Issue: Will result in overstatement of credits to carriersRemedy: can we resolve this with revised wording to clarify

that this requirement is for purposes of calculating consumption factor (I.e. MPG/KPL) and taxable gallons/litres?

2. R945.200 – Adjustments in base jurisdiction:Issues: 1. Interferes with jurisdiction sovereignty in tax policy matters

and 2. Impossible to administer

Assessing Option #2 - Possible Revisions:

Remedy:

Firstly, keeping the NY example in mind, can we accept the following:

• does not impact on the actual tax rate imposed for an alternative fuel

• wording does not impose an obligation, but rather recognizes a situation jurisdictions will be inevitably forced into notwithstanding IFTA, when legislators introduce POS exemptions for alternative fuel.

• very few jurisdictions will be in this situation at any given point in time translating into a very low segment of carrier population affected

Assessing Option #2 - Possible Revisions:

Secondly,Can this be viewed as an acceptable means by which IFTA can formally recognize that these situations are best addressed at the jurisdictional level?(Keeping in mind that jurisdictions are bound by the principles of IFTA when establishing administrative practices relative to reporting)?

Thirdly,Would concerns be addressed if this clause is revised to clarify that adjustments may be provided to avoid underpayments (POS incentives) as well as overpayments (refunds)?

Assessing Option #2 - Possible Revisions:

And finally,Must acknowledge that carriers based outside the base jurisdiction that offers the POS incentive will make purchases of bio-diesel at reduced/exempt rates.

Possible remedies:1. Implement mandatory adjustment provision for all jurisdictions2. a)Introduce requirement that carriers report by jurisdiction all

volumes of biodiesel purchasedb) require this information to be included in transmittals so that jurisdictions can analyze materiality and exercise auditing authority where deemed necessary