IFTA – Dual Fuel Vehicle Tax Reporting

1. IFTA – Dual Fuel Vehicle Tax Reporting February 9, 2016 Las Vegas, NV Hugh Hughson (BC)

2. Overview • What is a Dual Fuel Vehicle? • Prerequisites for Reporting • LNG Conversion issues (Ballot #5-2015) • New Fuel Types for the Clearinghouse • Prorating Distances Travelled • An IFTA Tax Return Example • Discussion

3. Dual Fuel Vehicles - 101 • Dual fuel vehicles can use two fuels at the same time (e.g., diesel and natural gas) • Can operate solely on diesel but not natural gas • At idle and high load conditions the engine burns mostly diesel • At low load, the engine burns up to 95% natural gas (diesel is used solely to trigger combustion) • Overall the same power and performance of normal diesel engines

4. Dual Fuel Vehicles - 101 • Why is this engine technology being developed and used: • Lower fuel cost compared to diesel • Environmentally friendly (lower truck emissions) • Why is this important to IFTA • Anticipate at least 5% of long haul vehicles will be dual fuel within the next 5 years

5. Dual Fuel Vehicles - 101 • At a high level: • Pure Diesel Diesel Purchased / Distance • Dual Fuel Diesel Purchased / Distance LNG Purchased / Distance

6. Dual Fuel Vehicles - 101 • Natural gas is sold in two physical states: • Compressed Natural Gas (CNG) • A high pressure gas (e.g., 3,000 to 3,600 psi) 2. Liquefied Natural Gas (LNG): • A super-cooled liquid (e.g., -260°F or -170°C)

7. LNG Conversion Issue CDN Jurisdictions US Jurisdictions Fuel Purchases Kilograms DG - Straight Weight (3.5 lb = 1 gallon) DGE - Energy Equivalent (6.06 pounds = 1 DGE) Two Questions: What does a carrier report regarding LNG purchases to their base jurisdiction? How does the carrier convert their purchases accurately and consistently?

8. FT #05-2015 CDN Jurisdictions US Jurisdictions DG - Straight Weight (3.5 lb = 1 gallon) Kilograms DLE - Energy Equivalent (0.73 kg = 1 DLE) DGE – Energy Equivalent (6.06 pounds = 1 DGE)

9. FT #05-2015 CDN Jurisdictions US Jurisdictions Fuel Reporting

10. FT #05-2015 • Is not a dual fuel issue, the problem exists for any pure LNG vehicle • Same as other conversions we used to ensure consistent reporting and disbursement of taxes between jurisdictions (e.g., distances, volumes, and currency) • The Ballot is only changing how we report LNG for IFTA purposes (There is no impact to sovereignty, a jurisdiction’s tax rates and units of measure are their responsibility)

11. Fuel Types/Distances • Dual fuel vehicles must be treated and reported separately (e.g., gasoline fleet, diesel fleet, LNG fleet, dual fuel fleet) • Dual fuel vehicles must be treated and reported as two vehicles: • Separately reporting the distances travelled and fuel purchased • Pro-rating the distances to avoid double counting

12. Fuel Types/Distances • At a high level: • Pure Diesel Diesel Purchased “D” • Dual Fuel Diesel Purchased “DL” LNG Purchased “DLG”

13. New Fuel Types • For Diesel / LNG vehicles • DL - To report diesel used with LNG • DLG - To report LNG used with diesel • For Diesel / CNG vehicles • DC - To report for diesel used with CNG • DCG - To report CNG used with diesel

14. New Fuel Types DL/ DC DLG DCG

15. Prorating Distances • Dual Fuel DL Purchased / Distance DLG Purchased / Distance • Think of the dual fuel vehicle as two different trucks (or fleets) DL Purchased / Distance DLG Purchased / Distance

16. Prorating Distances • Prorating is based on fuel purchases, and this example is based on: • 1.25 gallons of diesel purchased; • 7.50 DGE of LNG purchased; and • 100 miles travelled. • (Note - Two dual fuel vehicles/fleets requires 4 return lines/schedules)

17. Questions / Discussion

18. Simple Example - IFTA Tax Return

19. Prorating Worksheet • Prorating more complicated if a carrier has exempt distances • A worksheet can be used to accurately prorate the “Total Distance” and “Taxable Distance” between fuel types.

20. Simple Example - IFTA Tax Return

21. General Thoughts • From a tax reporting/transmittal process dual fuel technology is: • A significant change in how we operate and will require system changes; and • Places a significant burden on carriers and auditors

22. General Thoughts • Jurisdictions will need: • To convert and provide to IFTA their LNG tax rates in energy equivalents (IFTA will convert for volume and currency differences and post for all jurisdictions to use) • Obtain LNG energy equivalent tax rates from IFTA • Instruct carriers if/how convert their purchases (e.g., Kg to DLE or DGE, Gallons to DLE or DGE) • More time for audit activities (e.g., a carrier with three fleets will have 5 tax lines/schedules per jurisdiction)

23. Audit Considerations • Does the carrier have a dual fuel vehicle (does their tax department know)? • Does the tax department, correctly: • Separate all fuel purchases (e.g., D, DL, DLG, LNG)? • Convert all LNG purchases to the units of the base jurisdiction (e.g., kilograms to DGE)? • Separate and prorate the dual fuel distances (to avoid double counting)? • Transfer all the information to the tax returns (for each fuel type)?

24. Dual FuelWorking Group IFTA: Hugh Hughson (BC) Dawn Lietz (NV) Paul Bernander (WI) Garry Hinkley (ME) Tim Ford (CA) Chuck Ulm (MD) Industry: Robert Pitcher (ATA) Gary Bennion(Con-Way) FTA: Cindy Anders-Robb IFTA, Inc. Advisors: Lonette Turner Amanda Koeller

25. Questions / Discussion

26. Thanks!

27. Complex Example - IFTA Tax Return Reporting • Assumptions: • 1 Carrier with three IFTA fleets: • Pure Diesel; • DL/DLG; and • DC/DCG • No exempt fuel purchases and no exempt distances • All fuel purchases and distances have been converted into the base jurisdiction’s units of measure and currency

28. Example - IFTA Tax Return Reporting

29. Example – For DL/DLG Fleet

30. Example – For DL/DLG Fleet

31. Example – For DC/DCG Fleet

32. Example – For DC/DCG Fleet

33. Result for the 3 Fleets

34. Results for the 3 Fleets (Just a different way to display results)