Georgia, Ohio and North Carolina Cut Their Diesel Tax. Don't Rush to Fill Up There.

Georgia and North Carolina have suspended their state diesel tax, and Ohio has cut its rate to a hundredth of a cent. The pump signs show it, and some of your drivers are already planning fuel around them.

With diesel averaging $6.276 a gallon nationally in the Energy Information Administration's October 19 reading, a pump sign that drops by a state's whole diesel tax gets attention. But for an interstate carrier that files IFTA (International Fuel Tax Agreement) returns, the cheaper pump isn't where the saving is.

Under IFTA, fuel tax is owed on the miles you drive in each state, not on where you buy the fuel. So a tax holiday saves you money on the miles your trucks drive in Georgia, Ohio and North Carolina. It doesn't make the gallons they buy there any cheaper.

What Actually Changed

• Georgia: by executive order, the state stopped collecting its motor fuel excise tax, clear diesel included, from September 29 through November 5, a date set when a second order extended the suspension. Its usual diesel rate is $0.373 a gallon.
• Ohio: under a new state law, the diesel rate drops from $0.47 a gallon to one-hundredth of a cent from October 4 through January 2. Ohio law requires fuel retailers to pass the whole cut through to customers.
• North Carolina: under a new state law, the motor fuel excise rate is zero from October 10 through November 30. Its usual rate is $0.41 a gallon.

Only the state tax changed. The federal excise tax is still on every gallon, and IFTA doesn't touch it. All three holidays are temporary, so note each end date: your IFTA return and your fuel software both have to follow them.

How IFTA Settles Fuel Tax

Under IFTA you don't really pay state fuel tax at the pump. You prepay it there. Each quarter, your one IFTA return works out what you owe each state: your miles in that state, divided by your fleet MPG, times that state's rate. That's a tax on the fuel your trucks burn in the state, wherever they bought it. The return then credits you for the tax you prepaid at each state's pumps and nets it all out, so the tax you prepaid counts against what you owe.

So the pump price isn't what a gallon really costs you. Its true cost is the pump price minus the state tax your return credits back, and that's what a fuel plan should rank stations on. It's also why the cheapest pump is so often not the cheapest fuel.

Why the Holiday Doesn't Make the Fuel Cheaper

Before the holiday, a Georgia station's pump price included Georgia's tax, and your IFTA return credited that tax back. So the gallon's true cost was the pump price with the tax taken off.

During the holiday, a station that passed the whole cut through dropped its price by exactly the tax. But a tax-free gallon earns no credit: Georgia's filing guidance for the holiday tells carriers to leave tax-free Georgia gallons out of their tax-paid gallons. So the true cost is now the pump price with nothing taken off, which is the same number as before. Here it is with an example pump price:

There is one real difference, and it's cash. Before the holiday you prepaid the tax at the pump and got it back when your return was filed. Now you don't prepay it. That changes when you pay, not what the gallon costs.

A station that kept part of the cut makes things worse. If its price fell by less than the tax, the part it kept is a real cost, because none of it comes back on your return. Ohio's law requires retailers to pass the whole cut through. In Georgia and North Carolina, check whether your stations passed the whole cut through. How to check is further down.

Where the Holiday Does Save You Money

The saving is real. It just shows up on the mileage side of your IFTA return, not at the pump. For each state, the return lists total miles (every mile you ran there) and taxable miles (the ones the state charges tax on). Georgia's guidance tells carriers to report their Georgia miles from the holiday in total miles but leave them out of taxable miles, so those miles owe Georgia nothing. Ohio's line on your fourth-quarter IFTA return carries two rates: the usual rate for Ohio miles before its holiday began, and the holiday rate for Ohio miles after it began. North Carolina's fourth quarter splits three ways: its usual rate before its holiday, zero during it, and the usual rate again in December.

Because the tax follows the fuel your trucks burn in a state, the saving applies to every mile they run in those states during the holidays, whether or not they buy a drop there. To illustrate: a truck that runs 380 miles across Georgia at 6.5 miles per gallon burns about 58.5 gallons there. At Georgia's usual rate, that's about $22 of Georgia tax it won't owe, even if it fueled in Tennessee and again in Florida.

The saving shows up as a smaller Georgia line on your return, as long as the return gets the dates right. That starts with the third quarter: Georgia's holiday began in late September, so the third-quarter return already includes two holiday days in Georgia. In the fourth quarter, each state's miles have to be split at its holiday dates, and Ohio's holiday carries into the first quarter of next year. Make sure your IFTA software or preparer has every date.

To size the saving for your own fleet, run your ELD or telematics mileage report for each holiday's exact dates (a quarterly state summary won't split them). Divide each state's holiday miles by your fleet MPG to get the gallons burned there, and multiply by that state's usual rate. Nothing at the pump adds to that figure.

Three Fuel-Buying Mistakes the Holiday Invites

The miles saving depends only on your return getting the dates right. What can go wrong is the fuel buying, and money lost there doesn't show up until you compare the quarter's fuel spend against the plan.

Chasing the sign

A driver, or a cheapest-pump rule in dispatch, sees holiday-state diesel priced below every station across the state line and fills up there. On true cost that stop is no cheaper than before, and at a station that kept part of the cut it costs more. So it's the right stop only if it was already the right stop before the holiday, and if the driver went off route to reach it, the detour is pure loss. It's the same problem as drivers skipping the planned fuel stop, only this time the pump sign is doing the persuading.

Subtracting a tax that isn't there

Any fuel plan that ranks stations on pump price minus state tax has to use the rate in effect on the day of the purchase. Suppose a plan still subtracts Georgia's usual rate from a pump price that no longer includes the tax. Then every Georgia station looks cheaper than it really is by Georgia's whole usual rate, and the plan pulls fuel into Georgia for no reason. In Ohio and North Carolina, whose usual rates are higher, the error is bigger still.

This one is easy to miss, because tax rates are published by quarter and these holidays don't line up with quarters. IFTA, Inc., the nonprofit that serves the agreement's member jurisdictions, publishes the rate each one charges, one table per quarter. When this was written, its fourth-quarter table still listed all three states at their usual diesel rates, with the holidays covered in separate notices. If your fuel software or your spreadsheet takes its rates from that table, check what it's using in these states before your next plan runs. A quick test: during Georgia's holiday, a plan should rank a Georgia station at its pump price, with nothing subtracted.

Scoring the pump instead of the cost

If your fuel buying is scored on price paid per gallon against a budget or the weekly government average, both of which include state tax, purchases in the holiday states will look like wins this quarter. On true cost they aren't. Score on true cost, or set those states aside until the holidays end. The same goes for a smaller fleet that judges drivers' stops by price per gallon: don't give credit for a holiday-state fill.

Check Your Fuel Network's Holiday Price

If you buy at a contracted price through a truck-stop network or a fuel card, ask how that price handles the holiday dates. On a cost-plus price, the state tax line should come off on the holiday's first day and go back on the day after it ends. If you pay the posted pump price, or a discount off it, your price follows the station's, so compare the station's posted price the day before the holiday began with its price on the first day. A drop well short of the tax, on a day when wholesale prices held steady, suggests the station kept part of the cut.

However your price is built, the comparison that matters is the same: what each station costs you after the tax settles on your return. A fuel card's discount doesn't make that comparison for you, and neither does a pump sign.

What to Do Now

1. Tell your drivers before they chase the signs. Something like: holiday pump prices don't lower our cost, so stick to the planned stop and don't go off route for one.
2. Give your IFTA preparer or software the dates. Georgia's two September holiday days go on your third-quarter return, each state's fourth-quarter miles split at its holiday dates, and Ohio's holiday carries into the first quarter of next year. Keep reporting every mile and gallon in these states so your fleet MPG comes out right.
3. Check the tax rate your fuel software uses in Georgia, Ohio and North Carolina. For a purchase inside a state's holiday, the rate should be zero (a hundredth of a cent in Ohio). For a purchase outside it, the rate should be the state's usual one.
4. Watch the end dates. When a holiday ends, the usual rate and the usual math come back. Georgia has already extended its holiday once, and any of the three could be extended.

Our diesel price tracker follows the government's weekly averages, if you want to see where diesel stands week to week.