Fuel tax is one of the simplest, most efficient and most cost-effective taxes imposed. It costs less than two percent to administer, audit and collect – with one glaring exception. The way Georgia taxes trucks in interstate commerce is not only inefficient, it actually costs the state money.
Commercial truck operators rightly pay thousands of dollars in fuel tax each year. But unlike cars, truck operators don’t simply pay at the pump. They are forced to track their purchases and their mileage for use in a system of debits and credits between state governments called the International Fuel Tax Agreement (IFTA). Payments flow to and from the states based on these reports. Its goal — to ensure states don’t compete on price — would be illegal in the private sector, but states have used it for decades.
In theory, each state gets paid for each mile traveled by a truck regardless of fuel purchases. But it doesn’t work out well for Georgia. According to the Department of Revenue, our state loses more than $1 million each quarter from participating in this program. In other words, if Georgia collects $100 million a year from interstate trucking under this program, it pays out about $105 million. This negative result is masked by the much larger overall total from all diesel sales to truck operators, but still it’s a lot of work for a net loss.
But it gets worse. The IFTA agreement controls how truck operators can get credit for taxes paid (so they don’t pay double) and it doesn’t allow local level sales taxes to be part of the equation. All states have adjusted to this after joining IFTA – all states except Georgia, which still allows local sales taxes on fuel sales. This actually penalizes truck operators for purchasing fuel in Georgia. If a truck operator purchases fuel at the pump and pays local tax, the operator can never receive credit for the tax paid, even if essentially all of the fuel is used in another state; so buy in Georgia and pay double tax.
Since truck operators often deal in tens of thousands of gallons a week, even a few cents that cannot be recovered has a huge financial impact to small and mid-size carriers. If the carrier purchases fuel in a surrounding state, it receives full credit under the IFTA system. If a carrier purchases fuel in Georgia, it leaves money on the table – effectively making the Georgia fuel tax more expensive than any other state around – but with no benefit to the truck operator, the DOT or the people of our state.
The practical result of this is a practice among many carriers to avoid purchasing fuel in Georgia, indeed many have company policies that direct drivers to cross out of the state before buying fuel – and may even penalize a driver for failing to do so. The practices are utilized by both Georgia-based carriers and those from other states who travel through the Peach State. Moreover, many border-area Georgia truck stops and convenience stores lose sales they would otherwise make, adding to the state’s revenue losses and hurting those border businesses and jobs.
There is a solution to this problem. As the legislature considers many changes to fuel taxation and infrastructure funding, our elected leaders should give full consideration to making two relatively straightforward changes in this area that could greatly increase revenue to the state and Department of Transportation.
First, diesel fuel should be taxed at the pump on an excise tax basis only, and local sales taxes should be banned from fuel so all the tax goes to the road system (setting the rate to account for all current state and local taxes as well as any planned increase).
Second, and admittedly a bit more “inside baseball,” the state should change how interstate trucking firms pay their fuel tax by setting the IFTA rate at zero, but using the same IFTA reporting process to assign an mpg rate and a calculated fuel tax owed.
If these changes were made, the result would bring additional millions per year into DOT, including recapturing the money being paid out to other states. It would also bring jobs and sales back to the state’s border areas as there would no longer be an incentive to shop just across the state line.
