Who pays fuel taxes on a leased vehicle?
If your operations involve leased commercial vehicles subject to fuel taxes, make sure you know your role — or risk the fines, penalties, and interest that result from late payments.
In a lease, the parties may negotiate certain items. This includes who will pay for fuel taxes under the International Fuel Tax Agreement (IFTA). However, certain conditions apply to different circumstances. And the details of the arrangement must be clearly spelled out in the written lease agreement.
Renting/leasing just the truck
Short-term leases: A lease of 29 days or less is considered a short-term lease/rental. In the case of a short-term rental by a lessor who leases or rents out motor vehicles without drivers, for compensation, to licensees or other lessees (carriers), the lessor will report and pay the fuel use tax.
Here’s the twist: The lessee (carrier) can be designated in the lease as responsible for the fuel taxes if the following two conditions are met:
- The lessor has a written rental contract which designates the lessee as the party responsible for reporting and paying the fuel use tax; and
- The lessor has a copy of the lessee’s IFTA fuel tax license which is valid for the term of the rental.
Long-term leases: A lessor leasing or renting out motor vehicles without drivers for compensation to licensees or other lessees may be designated as the licensee. The lessor may be issued a license if an application has been properly filed and approved by the base jurisdiction.
That said, in most long-term lease scenarios the lessee (carrier) takes on this responsibility.
Renting/leasing independent contractors (owner-operators)
Short-term leases: In the case of a carrier (the lessee, in this scenario) using independent contractors under short-term/trip leases of 29 days or less, the trip lessor (independent contractor) will report and pay all fuel taxes.
Long-term leases: In the case of a carrier using independent contractors under long-term leases (30 days or more), the lessor (independent contractor) and lessee (carrier) have the option of designating which party will report and pay fuel use tax.
The lessee (the carrier) will be responsible for reporting and paying fuel use tax if:
- There is no a written lease agreement or contract, or
- The document is silent regarding the responsibility to report and pay fuel use tax.
If the lessee (carrier) assumes responsibility for reporting and paying fuel use taxes, the IFTA base jurisdiction will be the base jurisdiction of the carrier, regardless of the jurisdiction in which the qualified motor vehicle is registered for vehicle registration purposes by the lessor.
Key to remember: Responsibility for fuel taxes can be negotiable under a lease. But the details must be clearly spelled out in the written lease agreement. Know your role to stay in compliance and avoid fines and penalties.