Clark Snelson Assistant Attorney General

State of Utah(With thanks and recognition to Ted Spangler, Assistant

Attorney general, Idaho, retired)

For presentation to the MTC Attorney Training Session October 6,2015

In most states, motor fuels tax is paid:

•“At the rack” by a terminal operator, fuel distributor, or fuel importer.

•Interstate carriers (truckers) pay tax on fuel they use in a state, not on fuel they buy in a state.

The Pre- IFTA Problem:

Before adoption of IFTA, each U.S. state and Canadian province had its own:

Fuels tax return, License, Decals, Laws and Rules; and Performed its own audits.

An interstate trucker operating in many U.S. states or Canadian provinces had to comply with the reporting requirements

of each state or province.

This made filing returns difficult, time consuming, and expensive.

• Base state permitting, reporting, payment, and auditing

• Tax paid in proportion to use in each state

• Uniform definition of “qualified vehicle”

• Tax reconciliation among states

The IFTA Solution

RETAIN TAX SOVEREIGN AUTHORITY

Each member state sets it own tax rate

and defines its own exemptions.

• Arizona, Iowa, and Washington form the “International Fuels Tax Agreement.”

• Voluntary agreement among state fuel tax administrative agencies.

1983

Intermodal Surface Transportation Efficiency Act (ISTEA)

Enacted by Congress (49 USC 31701 – 31707)

• September 30, 1996, deadline for U.S. states to “conform” to IFTA (except Alaska & Hawaii).

• Funds working group to assist implementation. (Now repealed.)

1991

Current Membership

58 “Jurisdictions”

48 U.S. States 10 Canadian Provinces

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AN EXAMPLE FROM IDAHO

GETTING STARTED

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Trucker submits licenseapplication

to Idaho – his base state.

1Tax Commission

reviews and processeslicense application.2

Trucker is issuedone IFTA license and

two decals foreach truck.

3Trucker may now

operate in 58 U.S. states and

Canadian provinces.4

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Year  2006 IFTA Decal

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Each calendar quarter, a trucker prepares a quarterly IFTA tax

return and files it with his base state

– in this case, Idaho.

Each calendar quarter, a trucker prepares a quarterly IFTA tax

return and files it with his base state

– in this case, Idaho.

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16

Here is the information for

Idaho.

Here is the information for

Idaho.

This line shows the taxpayer claims it purchased 12,000 tax-paid gallons in Idaho. This means the distributor should have paid $3,000 (12,000 x $.25) to the state.

This trucker purchased more fuel in Idaho and Wyoming than he used for travel in these states and less fuel than he needed to travel in Nevada and Utah.

IFTA reallocates the money through a netting process to make these adjustments.

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Here is the information for the other jurisdictions.

Sample Idaho return:

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Trucker pays $315.00.

WHAT HAPPENS NEXT?

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Base state (Idaho) sends the transmittal report to all other states (Nevada, Utah,

and Wyoming).5

Base state (Idaho) processes all transmittal reports and payments from

other states. 6

In this example, the taxpayer pays $315 to Idaho. Idaho pays Nevada $1,350 and

Utah $245 and collects $280 from Wyoming.

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Legal Issues Involving IFTA

What is IFTA?

Why should I care?

Statutes, rules, & regulations need to conform

Affects enforcement & collection

What IFTA is governs how it can grow and change

1. Articles of Agreement

2. Procedures manual

3. Audit manual

IFTA Consists of:

GOVERNING DOCUMENTS

The Audit Manual and Procedures Manual authorized by this Agreement are equally expressive of, and constitute evidence of this multijurisdictional agreement. The provisions of all three IFTA documents shall be equally binding upon the member jurisdictions and IFTA licensees.

[Emphasis added.]

ISSUE

Is IFTA a Compact under the Compact Clause of the U.S. Constitution?

Compact Clause

“No state shall, without the Consent of Congress, … enter into any Agreement or Compact with another State, or with a foreign Power ….”

U.S. Const., Art. I, § 10, cl. 3.

Is IFTA a Compact under the Compact Clause?

An interstate agreement is a compact requiring Congressional consent if it “tends to increase the political power in the States, which may encroach or interfere with the just supremacy of the United States.”

United States Steel Corp v. Multistate Tax Comm’n , 434 U.S. 452 (1978)

Congressional Consent

“Congress has consented to IFTA, 49 USC § 31705”

May Trucking Company, Inc. v Department of Transportation ,Court of Appeals of Oregon , 203 Or. App 564, 126 P.3d 695 (2006)

Compact Clause Implications

Compact provisions are federal law.

Can preempt the operation of inconsistent state law.

Cuyler v. Adams, 449 U.S. 433 (1980)

IFTA is not a federal mandate

– Began without federal action

– ISTEA says “agreement”

– States allowed to amend IFTA• See, 49 USC 3175(c)

– Constitution limits mandates

“No matter how powerful the federal interest involved, the Constitution simply does not give Congress the authority to require the States to regulate. The Constitution instead gives Congress the authority to regulate matters directly and to pre-empt contrary state regulation. Where a federal interest is sufficiently strong to cause Congress to legislate, it must do so directly; it may not conscript state governments as its agents.”

[Emphasis added.]

New York v. US, 505 US 144 (1992)

"[E]ven where Congress has the authority under the Constitution to pass laws requiring or prohibiting certain acts, it lacks the power directly to compel the States to require or prohibit those acts…. “

[Emphasis added.]

Printz v US, 521 U.S. 898 (1996)

IFTA is a “hybrid” agreement

1. Core concepts are an interstate compact under the Compact Clause of the U.S. Constitution

2. Implemented by reciprocal statutes

3. Administered through reciprocal administrative agreements

Core Concepts (Reflected in ISTEA)

Base jurisdiction concept for:reportingpaymentauditing

Uniform definition of taxpayer

Jurisdiction retention of substantive tax authority (e.g., rates, exemptions)

Implemented by reciprocal statutes

• Reflect that IFTA is an agreement to which jurisdiction is a party

• Proper delegations of authority to administrators (not core provisions or legislative power)

• Clear assessment & collection authority

• Beware of incorporation by reference problems

Administered through reciprocal administrative

agreement.

• Provides flexibility for the details of administration, collection, and enforcement

Compliance Issues

Lack of recordsFuel receipts

Mileage recordsMPG calculations

Dyed fuel