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
Why is this engine technology being developed and used:
Significant lower fuel cost compared to diesel
Environmentally friendly (lower truck emissions)
Domestic supply – less concern about future world price and availability compared to other fuels
Challenges
Infrastructure:
Fueling stations with equipment to cool the gas; and
Fuel supply availability along transportation corridors for long haul trucks
Weight and space considerations (e.g., extra engine components and different fuel tanks capable of keeping LNG cool until used which reduce load-carrying capacity)
Why is this important to IFTA
IFTA tax return was built for reporting one fuel type per vehicle, and we need to agree on a new process to ensure a fair and consistent distribution of taxes
Expect:
LNG will be used more for since the energy content comparable to gasoline and diesel fuels

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
Assume:
Carriers will work to maximize savings:
Will make best efforts to not run out of lower taxed fuel.
Most dual fuel vehicles have less diesel storage capacity, so if they run out of LPG or CNG there are significantly higher operating costs (i.e., less engine power, and more frequent fuel stops); and
Infrastructure will improve (i.e., more filling stations) so carriers are less likely to run out of LPG or CNG.
Estimated savings of $300,000/year/locomotive
“Think we are getting to the tipping point, where like the conversion from steam to diesel locomotives, we are about to see a significant North American shift from diesel to natural gas.
Road:
By the end of 2012 there were million natural gas vehicles worldwide, led by Iran (3.3 million), Pakistan (3.1 million), Argentina (2.18 million), Brazil (1.73 million), India (1.5 million), and China (1.5 million).
Rail:
BSNF is also testing and some literature estimates savings of over $200,000 per year per locomotive using LNG.
Marine:
New Marlin-class containerships are currently under construction in San Diego. Each is a dual fuel vessel, and when burning natural gas, the ships are expected to produce 98 percent less sulfur oxides, 71 percent fewer nitric oxides, 71 percent less carbon dioxide, and a 99 percent reduction in particulate emissions, all while increasing the vessels' fuel efficiency compared to conventional diesel engines.
B.C. Ferries earlier announced that a shipyard in Poland will build three 105-metre-long, intermediate-class ferries. They will also be dual-fuel ships, to run mainly on LNG.

5. Dual Fuel Vehicles - 101 At a high level: Pure Diesel Dual Fuel
Diesel Purchased / Distance
Dual Fuel
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)
Compressed Natural Gas (CNG) :
Stored as a gas in high-pressure tanks (e.g., 3,000 to 3,600 psi)
Often sold as a gaseous measure (e.g., ft3 or m3)
Liquefied Natural Gas (LNG):
Stored as a super-cooled liquid (e.g., -260°F or -170°C)
Almost always sold as a liquid measure (e.g., gallons or liters) or by weight
Requires greater infrastructure
Units of Measure (Challenges)
Liquids -40 to +40 (80 degrees swing/difference)
Liquid fuel volumes vary slightly depending on temperature and pressure (e.g., a 10 degree temperature change equals 1% volume change)
Considerably greater variations with gaseous fuels (LNG and CNG) with extreme temperatures and pressures ranges (e.g., -270°C or 3,200 psi)

7. DGE - Energy Equivalent
LNG Conversion Issue
CDN Jurisdictions
US Jurisdictions
Fuel Purchases
LNG is sold three different units of measure:
Gallons (3.5 lb per G) in 24 jurisdictions
Diesel Gallon Equivalents (6.06 lb per DGE) in 24 jurisdictions (1)
Kilograms in 10 jurisdictions
Alabama, California, Colorado, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, North Carolina, Nebraska, Nevada, New Hampshire, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Washington, and Wyoming, Source: Brett Barry, Public Policy and Regulatory Advisor, Clean Energy Fuels Corp. (June 2015).
Third question – What does a jurisdiction report to the other CH and Non-CH jurisdictions?
… and will jurisdictions easily know what units of measure other jurisdictions are using (e.g., kg, straight gallon or DGE are being used)
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 Kilograms
DLE - Energy Equivalent
(0.73 kg = 1 DLE)
DG - Straight Weight
(3.5 lb = 1 gallon)
DGE – Energy Equivalent
(6.06 pounds = 1 DGE)

9. FT #05-2015 CDN Jurisdictions US Jurisdictions Fuel Reporting
Kilograms
DLE (Energy Equivalent)
(0.73 kg = 1 DLE)
DGE (Energy Equivalent)
(6.06 pounds = 1 DGE)
DG (Straight Weight ) (3.5 lb = 1 gallon)
Amount Purchased
100
DLE
36.19 DGE
gallons
Tax Rate
$0.25 CDN
$ CDN
$0.59 US
$0.34 US
Total Tax
$25.00 CDN
$21.50 US

10. FT #
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
Note – This requires an additional tax return or schedule.
Worst case scenario, a carrier with one diesel and one DL/DLG, and one DC/DCG will be required to submit 5 tax returns/schedule

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

13. For Diesel / LNG vehicles
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
DL and DC fuel types are:
Diesel fuel, taxed at the diesel tax rate shown on the tax rate matrix.
Simply used to report diesel fuel used in dual fuel vehicles (where LNG or CNG is the second fuel).
DLG and DCG fuel types are:
LNG and CNG respectively, taxed at the applicable rates shown on the tax rate matrix.
Simply used to report LNG and CNG used in dual fuel vehicles (where diesel is the second fuel).

14. New Fuel Types DL/ DC DLG DCG
No new fuel types on the IFTA’s Tax Rate Tables.

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
Assumptions
Total Distance *
DL (gallons)
DLG (gallons)
Total Fuel J1
8,000
500 - J2
2,000
1,000
Total
10,000
1,500
* No exempt distances were traveled in either jurisdiction.
Prorate Distances by Jurisdiction Between Fuel Types
Total Fuel
Fuel by Type
Ratio DL
1,500
500
0.3333
DLG
1,000
0.6667
Total Distance
Ratio
Prorated Distance J1
8,000 DL
DLG
2,667
5,333 J2
2,000
667
1,333
Total
10,000

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.
Pro-Rating Worksheet
These fields auto-populate and then transfer to the appropriate
DL and DLG form/return for each jurisdiction 
TOTAL DISTANCE TRAVELLED
EXEMPT DISTANCE TRAVELLED
Total Distance DL Portion
Exempt DL Distance
Txbl Distance
DL Portion
Total Distance DLG Portion
Exempt DLG Distance
Txbl Distance DLG Portion J1
8,000
2,667
5,333 J2
2,000
667
1,333
Total Miles
10,000
3,333
6,667

20. Simple Example - IFTA Tax Return
Dual Fuel Vehicles – DL
Average MPG
6.67
Fuel Type
Jurisdiction
Total Distance
Txbl Distance
Txbl Volume
Tax Paid Volume
Net Txbl Volume
Tax Rate
Tax Due DL J1
2,667
400
500
-100
0.2000 -$ J2
667
100
0.1000 $
Sub-total
3,333 -$
Dual Fuel Vehicles – DLG
DLG
5,333
800
0.0500 $
1,333
200
1,000
-800
- $
6,667 -$
TOTAL
10,000
1,500 -$

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
Reminder - IFTA is an imperfect reporting system:
we accept average fuel consumption over all jurisdictions travelled (but not vehicle specific)
We accept fuel purchases as a proxy for actual fuel used.

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)
A carrier with three different fleets (e.g., diesel, DL/DLG, and DC/DCG) will be required to submit 5 tax return lines/schedules
D return
DL/DLG:
DL return line
DLG return line
DC/DCG:
DC return line
DCG return line
(Note - Two dual fuel vehicles/fleets requires 4 return lines/schedules)

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)?
Note the carrier/tax preparer has exactly the same challenges/additional work effort

24. Dual Fuel Working 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
Please feel free to ask question of any of these people.

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
Pure Diesel Fuel Fleet
Total Distance
Exempt Distance D DL
DLG DC
DCG
Diesel Fleet J1
1,600,000
500,000 - J2
400,000
50,000
Total
2,000,000
550,000
MPG
3.64
DL-DLG Fleet
DL/DLG Fleet
12,000
40,000
8,000
90,000
4.50
DC-DCG Fleet
DC/DCG Fleet
16,000
3,000
4,000
1,000
20,000
5.00

29. Example – For DL/DLG Fleet
Prorate the Miles by Jurisdiction Between Fuel Types
Total Fuel
Fuel by Type
Ratio DL
20,000
12,000
0.6000
(12,000 / 20,000 = 0.60)
DLG
8,000
0.4000
(8,000 / 20,000 = 0.40)
Pro-Rating Worksheet
ENTER BELOW FOR YOUR DL / DLG VEHICLES
These Field Auto-populated
Transfer these to the DL Form
Transfer these to the DLG Form
TOTAL DISTANCE TRAVELLED
EXEMPT DISTANCE TRAVELLED
Total Distance – DL Portion
Exempt DL distance
Txbl Distance - DL Portion
Total Distance – DLG Portion
Exempt DLG distance
Txbl Distance - DLG Portion J1
50,000
30,000 J2
40,000
24,000
16,000
Total miles
90,000
54,000
36,000

30. Example – For DL/DLG Fleet
Prorate the Miles by Jurisdiction Between Fuel Types
Total Fuel
Fuel by Type
Ratio DL
20,000
12,000
0.6000
(12,000 / 20,000 = 0.60)
DLG
8,000
0.4000
(8,000 / 20,000 = 0.40)
Pro-Rating Worksheet
ENTER BELOW FOR YOUR DL / DLG VEHICLES
These Field Auto-populated
Transfer these to the DL Form
Transfer these to the DLG Form
TOTAL DISTANCE TRAVELLED
EXEMPT DISTANCE TRAVELLED
Total Distance – DL Portion
Exempt DL distance
Txbl Distance - DL Portion
Total Distance – DLG Portion
Exempt DLG distance
Txbl Distance - DLG Portion J1
50,000
30,000 J2
40,000
24,000
16,000
Total miles
90,000
54,000
36,000

31. Example – For DC/DCG Fleet
Prorate the Miles by Jurisdiction Between Fuel Types
Total Fuel
Fuel by Type
Ratio DC
4,000
3,000
0.7500
DCG
1,000
0.2500
Pro-Rating Worksheet
ENTER BELOW FOR YOUR DC / DCG VEHICLES
These Field Auto-populated
Transfer these to the DC Form
Transfer these to the DCG Form
TOTAL DISTANCE TRAVELLED
EXEMPT DISTANCE TRAVELLED
Total Distance – DC Portion
Exempt DC distance
Txbl Distance – DC Portion
Total Distance - DCG Portion
Exempt DCG distance
Txbl Distance - DCG Portion J1
16,000
12,000 J2
Total miles
20,000
15,000
5,000

32. Example – For DC/DCG Fleet
Prorate the Miles by Jurisdiction Between Fuel Types
Total Fuel
Fuel by Type
Ratio DC
4,000
3,000
0.7500
DCG
1,000
0.2500
Pro-Rating Worksheet
ENTER BELOW FOR YOUR DC / DCG VEHICLES:
These Field Auto-populated
Transfer these to the DC Form
Transfer these to the DCG Form
TOTAL DISTANCE TRAVELLED
EXEMPT DISTANCE TRAVELLED
Total Distance – DC Portion
Exempt DC distance
Txbl Distance – DC Portion
Total Distance - DCG Portion
Exempt DCG distance
Txbl Distance - DCG Portion J1
16,000
12,000 J2
Total miles
20,000
15,000
5,000

33. Result for the 3 Fleets Fuel Type Total Distance Taxable Distance
Final Tax Return A B C D E F G H
Fuel Type
Jurisdiction
Total Distance
Taxable Distance
Taxable Fuel Volume
Tax Paid Volume
Net Taxable Volume
Tax Rate
Tax Due
Pure Diesel Fleet J1
1,600,000
440,000
500,000
(60000)
0.2000
-$ 12,000.00 J2
400,000
110,000
50,000
60000
0.1000
$ 6,000.00
Dual (DL/DLG) Fleet DL
30,000
6,667
12,000
(5333)
-$ 1,066.67
24,000
5,333 -
5333 $
DLG
20,000
4,444
4444
0.0500 $
16,000
3,556
8,000
(4444) -$
Dual (DC/DCG) Fleet DC
2,400
3,000
(600) -$
600 $
DCG
4,000
800
0.2500 $
1,000
200
(800)
0.1500
Totals (All Fleets)
2,110,000
574,000
-$ 7,180.00

34. (Just a different way to display results)
Results for the 3 Fleets
(Just a different way to display results)
Final Tax Return A B C D E F G H
Jurisdiction
Fuel Type
Total Distance
Taxable Distance
Taxable Fuel Volume
Tax Paid Volume
Net Taxable Volume
Tax Rate
Tax Due
All Activity in J1 J1
1,600,000
440,000
500,000
(60000)
0.2000
-$ 12,000.00 DL
30,000
6,667
12,000
(5333)
-$ 1,066.60
DLG
20,000
4,444
4444
0.0500 $ DC
2,400
3,000
(600) -$
DCG
4,000
800
0.2500 $
All Activity in J2 J2
400,000
110,000
50,000
60000
0.1000
$ 6,000.00
24,000
5,333 -
5333 $
16,000
3,556
8,000
(4444) -$
600 $
1,000
200
(800)
0.1500
Total
2,110,000
574,000
-$ 7,179.90