IFTA Litigation

2012-2013 PA IFTA Litigation
R&R Express v. Commonwealth
• 37 A.3d 46 (Pa. Commw. Ct. 2012), aff’d 65 A.3d 900 (Pa. 2013)
Southern Pines Trucking v. Commonwealth
• 42 A.3d 1222 (Pa. Commw. Ct. 2012), aff’d 69 A.3d 235 (Pa.
Senex Explosives, Inc. v. Commonwealth
• 67 A.3d 1268 (Pa. Commw. Ct. 2013)
2012-2013 PA IFTA Litigation
IFTA Interest
– Netting
from Motor
Carrier Road
R&R Express: Facts
 Taxpayer is a PA corp. engaged as a broker transporting
commodities throughout the U.S. by hiring owneroperator truckers as its fleet.
 Taxpayer owned no fuel facilities and purchased all fuel
from retail locations.
 Incomplete travel logs and documents failed to account
 all trips made, accurate mileage for recorded trips,
and the location, date, price, purchasing unit, and
volume of most fuel purchases.
R&R Express: Audit Findings
Program routes
conflicted with
No trip
Some drivers failed
to turn in any trip
miles vs.
Certain units’
reported miles did
not match vehicle
Info &
R&R Express: Audit Findings
Some fuel tickets
lacked dates, unit
numbers, or
purchase locations
Fuel tickets with no
trips to match
7 mpg?
Comparing the Taxpayer’s
average m.p.g. of taxedpaid fuel to distance
reported as traveled,
Taxpayer reported a 7.0
avg. m.p.g.
R&R Express: Audit Methods
Using records available, calculated margins of
error and arrived at an estimated unreported but
traveled mileage for Taxpayer’s fleet.
Auditor assessed Pennsylvania’s statutory 4.0.
average m.p.g. to Taxpayer for trips where
Taxpayer reported a 7.0 average m.p.g. traveled.
Auditor also assessed the 4.0 m.p.g. to Taxpayer
for documented traveled mileage but for which
no fuel consumption was reported.
R&R Express: Credit/Liability
The Auditor gave Taxpayer credit
for trips which possessed
sufficient documentation to
support jurisdictional mileage
and fuel consumption.
The Auditor did not give any tax
credit to Taxpayer for documented
trips for which no fuel consumption
was reported, or for fuel tickets that
were deficient (lacked unit number,
purchase date, purchase location,
purchase volume or price paid, etc.).
R&R Express: Auditor
 Lacking documentation, the auditor:
 modified mileage to reflect actual distance
traveled for reported trips
 provided estimated mileage for the
unreported travel
 assigned a statutory mileage rate to
determine the amount of necessary fuel
R&R Express: Applicable Law
75 Pa. C.S.A. § 9610 : Motor carriers must keep
records in a sufficient manner…
61 Pa. Code § 313.14 (Records Regulation):
Lists types of evidence sufficient to obtain a
credit for payment of liquid fuels tax.
IFTA’s Articles of Agreement : a licensee must retain: a
receipt, invoice, credit card receipt, or transaction listing
which establishes the evidence of purchase, amount of tax
paid, and that tax was paid directly to the applicable
jurisdiction or at that vendor’s pump.
IFTA Procedures Manual, § P560 requires a receipt to
establish proof of purchase similar to 61 Pa. Code §313.14.
IFTA A550.200 directs States to Deny All Claims for Tax
Credit where tax paid fuel documentation is not available.
R&R Express: Taxpayer Arguments
1. Credit for Tax Paid Fuel
2. Double Taxation
3. Use of Post-Audit Period Data
as substitute for actual period
Taxpayer’s First Argument…
…Tax-Paid Credits
 Taxpayer: The Auditor’s use of the
sampling method to arrive at estimated
miles traveled should also be used to
create an estimated credit for tax-paid
The PA Court Responds…
…Tax-Paid Credits
 Court: IFTA is premised upon the orderly and
uniform administration of auditing and
 IFTA also requires detailed record keeping, and
in the absence of sufficiently specific fuel usage
records, each state is directed to apply a
uniform estimated fuel use without granting
any credits.
 In light of this, the auditor’s methods were
Taxpayer’s Second Argument…
…Double Taxation
 Taxpayer: Taxpayer and the Commonwealth
stipulated that Taxpayer purchases all of its fuel
at retail locations, thus implying that fuel tax was
paid on all trips and covered all mileage.
Therefore, the imposition of tax based upon
inadequate records amounts to unconstitutional
The PA Court Responds…
…Double Taxation
 Court: IFTA and PA law mandate that taxpayers
who present fuel receipts lacking sufficient
specificity are to be denied tax credits. This tax
system does not utilize a discriminatory tax
scheme because it creates a uniform way to
distribute tax proceeds when the available
information is inadequate to determine the
amount of taxes which are owed to each
participating member.
Taxpayer’s Third Argument…
…Use of Post-Audit Period Data
 Taxpayer: Because IFTA and the Audit Manual
require that best evidence available be used to
determine the correct amount of tax due, the
Auditor should have used the post-audit period
data. Thus, a Taxpayer would keep better records
in the post-audit period and its operations in the
post-audit period were similar to the operations
during the audit period.
The PA Court Responds…
…Use of Post-Audit Period Data
 Court: IFTA and PA law require that the base
jurisdiction apply estimated fuel usage at the
statutory rate in the absence of adequate fuel
usage documentation. The court agreed with the
Commonwealth’s position that “there is no
statutory or regulatory authority to support
application of post-audit period data to calculate
tax due and such information is irrelevant.”
The PA Court Responds…
…Important Dicta
 “We cannot substitute our judgment
about the matter for the clear terms of
the Act, Agreement, and
accompanying regulations and
The PA Court Responds…
…Important Dicta
 “[W]e are faced with a [t]axpayer who
has failed to comply with clear
directives regarding documentation of
business activities and due to that lack
of documentation has failed to meet its
burden of proving tax paid fuel use."
The PA Court Responds…
…Important Dicta
 “The relevant and controlling law
explicitly requires documentation, not
estimates of the sort proposed by
Taxpayer, no matter how accurate we
may believe such estimates to be, nor
how sympathetic we may be to
Taxpayer’s plight.”
Southern Pines Trucking
 Similar to R&R Express but adds the matter of
whether IFTA interest owed to one jurisdiction
may be netted against interest credit from
another jurisdiction.
 Commonwealth Court said it may not be netted
because the IFTA agreement specifically
provides guidance on this matter.
 Both the R&R Express and Southern Pines
Trucking cases were affirmed by the
Pennsylvania Supreme Court.
388 F.3D 1261 (9TH CIR.
Sukanya Mukherjee
Staff Attorney
Comptroller of Maryland
 The Plaintiff, May Trucking Company is an interstate
motor carrier with its principal place of business in
Brooks, Oregon. Plaintiff owns approximately 600
tractors and 1,200 trailers that operate throughout the
continental U.S.
 In 2000, the Oregon Department of Transportation
(“ODOT”), mailed to Plaintiff a notice of assessment
covering the period of April 1, 1996 to December 31,
1998. Plaintiff had underpaid fuel taxes and owed
 IFTA has the force of law in Oregon and Oregon based
motor carriers can use the state as their base jurisdiction
under IFTA.
 Oregon itself does not impose a fuel tax on interstate
 IFTA has the force of law in Oregon and Oregon based
motor carriers can use the state as their base jurisdiction
under IFTA.
 Oregon itself does not impose a fuel tax on interstate
motor carriers in operating in their state. Instead, Oregon
relies on a complicated weight/mile tax system. As the
sole member in IFTA that receives no fuel taxes from
other base jurisdictions, Oregon’s participation in IFTA
does not generate revenue for the state. Oregon
participates in IFTA as a service to Oregon based motor
carriers operating outside the state.
Plaintiff’s Arguments
First, Plaintiff challenge’s ODOT’s audit procedures of the assessment levied
on Plaintiff.
Plaintiff argues that fuel consumed while idling was not tax-able under IFTA
Article VIII, R800 which states: “Consumption of motor fuels used in the
propulsion of qualified motor vehicles, except fuel consumed that is exempt
from taxation by a jurisdiction, is a taxable event under this Agreement.”
Plaintiff argues that because fuel consumed while idling does not propel the
vehicle, “idling time” is not a taxable event.
Plaintiff further contested that under various state and federal laws, the
validity of Oregon’s adoption of IFTA.
Administrative Hearing
Parties resolved their dispute regarding auditing procedures
ALJ concluded that fuel consumed while idling was indeed a taxable event
and that every appellate court has considered the argument that Plaintiff
has made and rejected such argument.
Additionally, to the extent that “idling time” fuel was tax exempt under the
statutes of various other member jurisdictions, Plaintiff must file its request
directly with the respective jurisdictions.
Plaintiff appealed the ALJ’s decision to the Oregon Court of Appeals.
Additionally, Plaintiff brought action to the Federal District Court.
Subsequently, Plaintiff appealed to the Ninth Circuit.
Ninth Circuit Analysis
Plaintiff sought both declaratory relief and a refund. Plaintiff claimed that it
was entitled to a refund for fuel consumed during “idling” because it had no
adequate or speedy remedy at law.
Moreover, Plaintiff argues that IFTA itself is illegal, invalid and
unenforceable under the United States Constitution, as well as adopted,
improperly implemented, and improperly delegated to the administrative
bodies by both Congress and the Oregon legislature.
Oregon sought dismissal of the action under 3 points:
1. The District Court lacked jurisdiction under the Tax Injunction Act (“the Act”);
2. The Eleventh Amendment; and
3. The Younger absentia doctrine from Younger v. Harris, 91 S. Ct. 746 (1971).
 Younger Absentia Doctrine - The United States has a federal court system with limitations
on the cases that federal courts can hear, while each state has its own individual court
system. In some instances, the jurisdiction of these courts overlap, so a lawsuit between
two parties may be brought in either or both courts. The latter circumstance can lead to
confusion, waste of resources, as well as the appearance that one court is disrespecting
the other. Both federal and state courts have developed rules determining when one court
will defer to another's jurisdiction over a particular case.
Analysis Continued…
The Tax Injunction Act states that a district court shall not enjoin, suspend or
restrain the assessment, levy or collection of any tax under any state law,
where a plain, speedy and efficient remedy may be had in the courts of each
The Act applies to taxes collected under IFTA. The purpose of the act is
implicated by multijurisdictional taxation programs. Congress enacted the
Act to protect the compelling needs of many States for a more prompt
disposition of tax controversies.
The Act has two objectives:
(1) to eliminate disparities between taxpayers who could seek injunctive relief in
federal court; and
(2) to stop taxpayers, with the aid of a federal injunction, from withholding large
sums of money, thereby disrupting state government finances
Analysis Continued…
Oregon itself does not collect fuel taxes, therefore, permitting federal action
will not result in a temporary delay or permanent loss of revenue to Oregon.
However, Plaintiff’s challenge in federal court will disrupt revenue collection in
every one of the other jurisdictions that rely on fuel taxes.
Recognizing the centrality of tax collection to the operation of government, the
Act prevents taxpayers from running to federal court to stymie the collection of
state taxes.
Speedy and adequate remedy at law:
The efficiency of a state court remedy generally turns on whether it imposes
an unusual hardship on the party challenging the state tax requiring
ineffectual activity or an unnecessary expenditure of time or energy.
Oregon allows 30 days for an appeal of an assessment, if a petition for
reassessment is timely filed, the Department will reconsider the
assessment. Additionally, if a request for a hearing is timely filed, the
Department will schedule a hearing.
Analysis Continued…
Plaintiff had a hearing before an ALJ and appealed to the Oregon Court of
Appeals. Plaintiff nonetheless contends that it does not have a plain,
speedy, and efficient remedy in Oregon courts because the State concluded
that IFTA does not provide a refund remedy for fuel consumed while idling.
Oregon’s IFTA is a state, rather than a federal law, and it is a law under
which state taxes are assessed and collected. Therefore, the Act bars
federal jurisdiction of Plaintiff’s challenge to the interpretation of IFTA so
long as Plaintiff has an adequate remedy in Oregon courts with respect to
Plaintiff’s challenge to IFTA.
Plaintiff’s argument confuses its entitlement to a full and fair hearing with
its entitlement to a favorable resolution on the merits.
Nothing prevents Plaintiff from challenging the State’s unfavorable ruling in
a full and fair hearing in the Oregon court system, and if successful, from
receiving a refund.
The Act applied to Plaintiff’s challenge to IFTA and to the underlying state
fuel taxes.
The Court further held that Plaintiff had a plain, speedy, and efficient statecourt remedy with respect to both claims. Accordingly, the federal court
lacked subject matter jurisdiction.
APP. 2013)
 IFTA is the interstate agreement on collecting and
distributing fuel use taxes paid by motor carriers.
 It is designed to encourage cooperation in the
administration and collection of motor fuel taxes
throughout multiple jurisdictions.
 An interstate motor carrier pays all its state fuel taxes
quarterly to the base jurisdiction in which it registers as
a licensee
 IFTA then requires the base jurisdiction to apportion the
necessary tax to each state in which the motor carrier
 KC Transportation ran a fleet of approximately 150
trucks that travel throughout 49 jurisdictions in
North America.
 The Michigan Department of Treasury (the “Dept.”)
performed an IFTA audit on KC Transportation for
the period of October 1, 1999 – September 30, 2004.
 KC Transportation had many problems related to its
record keeping. KC Transportation was unable to
provide odometer readings which led the auditor to
use a random sample of trucks that had
maintenance records containing odometer readings.
 Additionally the Dept. found problems with KC
Transportation’s accounting system for fuel
purchases. There were some trucks with mileage but
no gallons of fuel purchased.
 IFTA allows auditor to assess a liability with a base of
4.0 MPG if there are no adequate records
 The Dept. eventually calculated 6.21 MPG rate after
removing certain outliers from the audit.
 The Dept. assessed KC Transportation with
$333,552.29 of unpaid motor fuel taxes
 $33,614.95 in penalties and $148,867.09 in interest
 KC Transportation argues that the Dept. failed to
utilize the best evidence available when the Dept.
demanded trip sheets instead of using KC
Transportation’s information from the electronic
control modules in the trucks.
 The Dept. sought daily trip sheets, as required by
IFTA. When KC Transportation did not have those,
the Dept. sought any other information that
contained odometer readings in order to comply
with IFTA.
 The Dept. eventually used the maintenance records
of certain trucks because the odometer readings
were recorded when the trucks were repaired.
 KC Transportation argues that the tax tribunal erred
in affirming the Dept.’s audit method. IFTA provides
broad latitude for auditors who have determined
that there are inadequate records.
 IFTA Articles of Agreement, R1210.100, provide that
the base jurisdiction has the authority to determine
a licensee’s tax liability on the basis of the best
information available.
 The IFTA Audit Manual, A100 and A540.200, provide
that the audit will be completed using the best
information available to the base jurisdiction.
 IFTA provides the Dept. with broad latitude once it
has determined that a licensee’s records are
 The IFTA Best Practices Audit Guide, states that
jurisdictions are in no way required to implement the
 The audit is to be conducted with the best
information available.
 The Dept. is entitled to use any pertinent
information when estimating a licensee’s fuel use.
 The Michigan Court of Appeals affirmed the
decision of the Michigan Tax Tribunal.
 The auditor testified that because KC
Transportation failed to keep required records,
the auditor used 32 or 33 vehicles as a sample
and used the available odometer readings.
 The auditor used the best information available
and the methodology was at the discretion of
the Department.
(PA. 2014)
By: Clark L. Snelson
Chair, IFTA Attorneys Section
Office of the Utah Attorney General
Summary of Questions
 Commonwealth Court erred in holding that
vehicles exempt under Pennsylvania Code 75 Pa.
C.S. § 2105(a)(7) are also exempt under IFTA.
 The Commonwealth Court erred in finding that
the definition of special mobile equipment under
Pennsylvania Code 75 Pa. C.S. § 102 and the
definition of qualified motor vehicle under IFTA
were mutually exclusive.
Summary of Argument
 Senex elected to meet its fuel tax requirements in all
jurisdictions using PA as its base state, and by also
electing to include the 14 disputed vehicles licensed as
special mobile equipment in PA in its IFTA fleet, Sensex
obligated itself to report all miles traveled and fuel used
by the disputed vehicles whether PA would
independently require those vehicles to report and
regardless of whether those miles would be subject to
 I. Placing IFTA Decals on Vehicles Carries Consequences that
Impact All IFTA Jurisdictions:
 Commonwealth Court concluded that vehicles were exempt from
IFTA by virtue of PA law, despite the fact that vehicles were
credentialed to travel in all 58 IFTA jurisdictions. This granted an
exemption by PA beyond its border to all IFTA jurisdictions in
contravention of the terms of the IFTA agreement.
 Three core concepts at the heart of IFTA:
(1) base state concept
 (2) the retention of each jurisdiction’s sovereign authority to determine its own
tax rates and exemptions
 (3) the definition of a qualified motor vehicle
IFTA Articles of Agreement, Article 1, § R.130.100
A. The Base State Concept Requires Reporting of All Vehicles in
the Fleet:
 By filing in its base state, Senex satisfied its fuel use tax
liability in all 58 jurisdictions. Senex has voluntarily
undertaken, its reporting all miles traveled by all vehicles in
the IFTA fleet. Additionally, Senex voluntarily placed
credentials on the disputed vehicles, thereby making them
part of the IFTA fleet
 Reporting miles traveled and fuel consumed makes it
possible to calculate MPG.
 Taxable miles traveled in each jurisdiction divided by the
fleet MPG yields jurisdictional fuel used, multiplied by the
jurisdictional rate yields the tax due.
 Base concept is compromised by allowing the disputed
vehicles to be exempt from IFTA, including all the
reporting requirements.
 All participating jurisdictions rely on the reports filed
with the base state to accurately calculate fuel used and
tax liability in their respective jurisdictions.
 The Commonwealth Court’s determination that the
vehicles are exempt in PA and are also exempt from IFTA,
threatens to undermine the base state concept
B. Each Jurisdiction Retains Sovereign Authority to
Determine Its Own Exemptions:
 The effect of the Commonwealth Court’s decision is to
export the effect of that exemption to all participating IFTA
jurisdictions. Pennsylvania has thus extended it’s reach
through its valid exemption and infringed on the sovereignty
of those jurisdictions
 By placing IFTA decals on its vehicles and include those
vehicles in its IFTA fleet, Senex obtained the right to travel in
all 58 jurisdictions without having to obtain temporary fuel
use permits. Senex waived the statutory right granted by
Pennsylvania to not report those vehicles by voluntarily
choosing to place those vehicles in its IFTA fleet.
 Pennsylvania courts have the full authority to
interpret and apply Pennsylvania law and to
determine whether or not the fuel used by
special mobile equipment in Pennsylvania is
subject to tax.
 However, the legislatures of the 57 other
jurisdictions which are signatories to the IFTA
agreement retain their rights to determine their
own exemptions.
C. The Definitions of Qualified Motor Vehicles are not
Mutually Exclusive:
 Regardless of how jurisdictions choose to exercise their
authority to determine exempt vehicles or exempt fuel
use, that any vehicle which meets the IFTA definition of
qualified motor vehicle or are declared to be qualified
motor vehicles by the licensee, report all their miles
traveled and fuel consumed “until such time as the decal
becomes expired or the vehicle is no longer under the
licensees authority.”
IFTA Articles of Agreement, Article VIII, § R.840 and IFTA Procedures Manual § P.
 By participating in IFTA, a carrier can meet its fuel use
obligation within 58 jurisdictions with a single filing. By
electing to place vehicles in the IFTA fleet, a carrier opens
the doors of all of those jurisdictions to travel without
obtaining fuel use permits.
 In return, the carrier agrees to report all miles traveled
and fuel used by those vehicles and keep records which
all the base jurisdiction to determine each state’s liability
and to collect and remit taxes for each jurisdiction.
 Participating jurisdictions retain their sovereign authority
to determine their own tax rates and their own
 Pennsylvania is free to determine the effect of its
exemption on Pennsylvania’s liability.
 Pennsylvania can fully exempt the miles
traveled by those vehicles in Pennsylvania
without exempting those vehicles from
IFTA and while still requiring reporting of
the vehicles as contemplated under the
IFTA Agreement.

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