An experienced owner-operator with a spotless record wants to lease on to your fleet. He’s got a well-maintained truck, a great attitude, and his own IFTA license and decals. He asks, “Can I just keep filing my own IFTA to keep things simple?” It’s a common question, but the answer isn’t a simple “yes” or “no.” Answering incorrectly can lead to fines, audit failures, and major compliance headaches for both you and the driver.
This situation sits at the crossroads of operational freedom and regulatory compliance. Getting it wrong can mean double-reporting miles, failing to report them at all, or facing penalties you thought weren’t your responsibility.
This article provides a clear, no-nonsense guide for motor carriers, safety managers, and owner-operators. We’ll break down exactly who is responsible for IFTA in a lease situation, what the law says, and how you can create a compliant partnership that protects everyone involved.
What’s the Situation and Why Does It Matter?
When an owner-operator (the lessor) leases their truck and services to a motor carrier (the lessee), the question of fuel tax reporting immediately comes up. The default assumption under the International Fuel Tax Agreement (IFTA) is that the motor carrier who is operating the vehicle under their authority is responsible for reporting all miles and fuel.
However, many owner-operators who have their own authority and IFTA account prefer to manage their own filings. This is where the risk lies. Without a crystal-clear, legally sound agreement, you can run into serious trouble:
Audit Liability: If the owner-operator fails to file or files incorrectly, auditors may hold your company liable for the unpaid taxes and penalties because there was no official document transferring that responsibility.
Compliance Chaos: Whose IFTA decals go on the truck? Who includes the miles in their quarterly report? If both of you report the miles, you’ve created a red flag. If neither of you do, it’s a guaranteed compliance failure.
Weight-Mile Tax Confusion: States like New York, Kentucky, New Mexico, and Oregon have separate weight-distance taxes. Responsibility for these taxes typically follows IFTA responsibility, and confusion here can lead to more fines.
Guesswork is not a compliance strategy. Let’s look at what the official rules say.
The Regulatory Context: What IFTA Actually Says
The International Fuel Tax Agreement is designed to simplify fuel tax reporting for carriers operating in multiple jurisdictions. The rules regarding leased vehicles are specific and can be found within the official IFTA Articles of Agreement and supporting state manuals.
The golden rule comes from the IFTA Procedures Manual, which states that for a long-term lease (30 days or more), the lessee (the motor carrier) is responsible for IFTA reporting.
However, there is a critical exception. The IFTA agreement allows the responsibility to remain with the lessor (the owner-operator) if and only if:
The lessor is an independent contractor with their own IFTA license.
There is a formal, written lease agreement that explicitly states the lessor is responsible for reporting and paying IFTA fuel taxes.
Without that written document, the responsibility automatically falls on your company.
Official Source: The IFTA Articles of Agreement (Section R540) outlines these lease provisions. For a more digestible version, state-level compliance manuals, like this one from Drive Kentucky, provide excellent, plain-language explanations.
For short-term leases (29 days or less), the lessor (owner-operator) can remain responsible without a specific clause, but the motor carrier must still keep a copy of their IFTA license as proof.
How Trucking Companies and Drivers Should Respond: An Action Plan
To ensure full compliance and protect your business, follow this step-by-step action plan whenever you lease on an owner-operator who will handle their own IFTA.
1. The Written Lease Agreement is Non-Negotiable
Your standard lease agreement should include a specific addendum or clause that clearly defines who is responsible for IFTA. It should state something like:
“The Lessor (Owner-Operator) agrees that they are an independent contractor and shall be solely responsible for registering, reporting, and remitting all fuel taxes under their own IFTA license ([License #XXXXXXXX]). The Lessee (Motor Carrier) shall not include the Lessor’s mileage or fuel purchases in their own IFTA filings.”
This clause is your primary defense in an audit.
2. Verify and Document Everything
Before the wheels start turning, collect and keep copies of the following in the driver’s file:
A signed copy of the lease agreement with the IFTA clause.
A copy of the owner-operator’s current IFTA license.
A photo of their truck showing their IFTA decals properly displayed on both sides of the cab.
These documents prove you’ve done your due diligence.
3. Don’t Mix Your Miles and Fuel
Your accounting and safety teams must understand that this driver’s data is separate. When you prepare your quarterly IFTA return, do not include any miles traveled or fuel purchased for any truck operating under its own IFTA license. Including their data is inaccurate reporting and can trigger an audit.
4. Address Weight-Mile Taxes Head-On
If you operate in Oregon, New Mexico, New York, or Kentucky, your lease agreement must also specify who is responsible for filing the required weight-mile or highway use taxes. Generally, this responsibility falls to the party handling IFTA. If the owner-operator is filing their own IFTA, they are also responsible for obtaining the necessary permits and filing for these states. Your company should not report their miles in those states.
5. Periodic Verification (A Best Practice)
While not legally required, it’s a smart business practice to periodically verify that the owner-operator is staying current with their filings. You can do this by requesting a copy of their filed quarterly IFTA return. This helps you identify potential issues before they become a liability. If a driver consistently fails to file, it may be a sign of deeper issues, and you might reconsider your lease agreement.
Summary: Who Handles What?
Question | If Driver Uses His Own IFTA + Written Lease |
|---|---|
Who Holds the IFTA License? | The Driver (Lessor) |
Whose Decals are on the Truck? | The Driver’s IFTA Decals |
Who Reports Miles/Fuel on IFTA Returns? | The Driver (Excluded from your company’s return) |
Who Handles Weight-Mile Taxes? (OR, NM, NY, KY) | The Driver is responsible for their own filings |
What’s Your Company’s Key Responsibility? | Maintain a signed lease agreement stating this |
WIs Verification Needed? | Recommended to request proof of filing quarterly |
Conclusion: Clarity is Your Best Defense
Allowing a skilled owner-operator to manage their own IFTA can be an efficient, empowering arrangement for both parties. But this flexibility must be built on a foundation of clear, documented, and compliant practices. A handshake deal or a verbal agreement is not enough—it exposes your company to significant financial risk.
By implementing a rock-solid written lease agreement, maintaining meticulous records, and ensuring your team understands the process, you can confidently navigate IFTA compliance. Don’t leave your company’s safety and financial health to chance.
