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A Sign of Things to Come? Kentucky Enters Into Consortium with Other States for Processing of IFTA Returns

by Erica Horn

While the subject of International Fuel Tax Agreement (IFTA) returns may not be of great interest to many tax professionals, the Kentucky Transportation Cabinet (KYTC) has contracted with a Minnesota company to process its IFTA returns, purportedly saving money for taxpayers. This contract raises the question of whether Kentucky, and other states, will begin outsourcing the processing of other types of returns, e. g., sales and use tax returns.

IFTA, an agreement among 48 states and 10 Canadian provinces, simplifies the reporting of fuel used by interstate and interjurisdictional motor carriers. The fuel taxes they pay go to fund infrastructure in the cooperating states.

The new contractor, Explore Information Services LLC, on a winning bid of $5.35 million, will create a web-based application to monitor tax returns. The company also will be responsible for annual maintenance and service, including emergency service with all parts, materials, equipment and supplies for the first five years. Costs will be shared by Kentucky and five other states, which will be known as the IFTA Processing Consortium (IPC). Kentucky will save an estimated $60,000 in the Second year of the contract.

Kentucky’s fuel tax reports had been processed by a regional center in Albany, N.Y., since 1996. But in 2012, New York announced it would discontinue managing the database for the regional center and sever its IFTA tax processing relationship with Kentucky and several other states by Dec. 31, 2014.

Kentucky then joined with five other states – California, Connecticut, New Hampshire, Michigan and Maryland – to form the IPC. Kentucky is the lead state, and, with the Explore contract, is the first state to subcontract with an outside vendor to process IFTA returns as a consortium with formal agreements with other states.