Rev. Rul. 55-209

Advice has been requested whether the tax on the transportation of persons imposed by section 3469 of the Internal Revenue Code of 1939 applies to amounts paid outside the United States under the following circumstances for transportation between points within the United States, and, if the tax does not apply, further advice has been requested as to the evidence required to establish the nontaxable character of such payments.

In the instant case a Canadian travel agency sells to residents of Canada a package tour which begins and ends in Canada and includes transportation between points in the United States. The travel agency does not issue a prepaid order, exchange order, or similar order for the United States portion of the tour, but transmits to the United States carrier a bank draft for the purchase of a ticket for such portion of the tour.

In accordance with the provisions of section 3469 of the Code the tax is imposed upon amounts paid without the United States on or after November 1, 1950, for the transportation of persons on or after such date, by rail, motor vehicle, water, or air which begins and ends in the United States.

Section 130.54(b)(1) of Regulations 42 provides, in part, that the tax does not apply to a payment made outside the United States for transportation which begins or ends outside the United States. For purposes of the preceding sentence, a payment made outside the United States for transportation between two or more points within the United States (such transportation being referred to as `the United States portion'), which is part of transportation from or to a point outside the United States, is a payment for transportation which begins or ends outside the United States, where it is definitely established at the time of making payment for the United States portion that such portion is purchased for use in making the journey from or to a point outside the United States. The Internal Revenue Service has not approved the use of any form or exemption certificate to establish the nontaxable character of such payment. However, section 130.54(b)(3) and (4) of the Regulations prescribe specific provisions for the establishment of the nontaxable character of a payment made outside the United States for the United States portion in those cases where a prepaid order, exchange order, or similar order for the United States portion is issued outside the United States and the ticket is issued within the United States pursuant to such order.

It is held that since the transportation sold in Canada by the travel agency is part of a package tour which begins and ends outside the United States, the amount paid to the travel agency for the United States portion of the tour is not subject to tax. Since in this case no prepaid order, exchange order, or similar order is issued, but instead a bank draft is transmitted to the United States carrier in payment for the ticket which is issued within the United States, it is held further that to establish the nontaxable character of the payment made to the Canadian travel agency for the United States portion of the tour, it will be necessary for the travel agency to transmit to the United States carrier with the bank draft a statement (1) certifying that the ticket is being purchased by the agency for use by the passenger in conjunction with connecting transportation from a point outside the United States and (2) showing (a) the origin and destination of the connecting transportation, (b) the identity of the carrier furnishing the connecting transportation, and (c) the serial number of the ticket covering such connecting transportation. The United States carrier should retain the statement in its records as evidence that the ticket issued by it was purchased for use in conjunction with the connecting transportation from a point outside the United States. The United States carrier also should inscribe on the ticket issued by it the information specified in (a), (b), and (c) above and, in addition, the name of the Canadian travel agency from which the payment for the ticket was received