Rev. Rul. 55-752

Advice has been requested whether the following-described trucking services furnished by a cooperative association are regarded as transportation of property by a `person engaged in the business of transporting property for hire' within the meaning of section 4272(a) of the Internal Revenue Code of 1954, so as to determine whether charges made in connection with such services are subject to the tax on transportation of property imposed by section 4271(a) of the Code.

A cooperative association composed of farmer member patrons was organized under state laws for the purpose of operating a general retail store. The association owns and operates trucks which pick up the members' produce, deliver it to the store, and do such other hauling as is necessary in the conduct of the store's business. The truck drivers are employed by the association. The cost of operating the trucks is deducted pro rata from the members' share of the proceeds.

In addition to the hauling performed in connection with the operation of the store, the trucks of the association pick up milk from some of its farmer members and deliver it to various creameries designated by the members. The association does not buy, process or sell the milk. A charge is made to the members for such hauling. The net earnings derived by the association from this operation are distributed to the members on a patronage basis.

Section 4271(a) of the Code imposes a tax upon the amount paid within or without the United States for the transportation of property by rail, motor vehicle, water, or air from one point in the United States to another. Under the provisions of section 4272(a) of the Code, the tax applies only to amounts paid to a person engaged in the business of transporting property for hire. The tax is payable by the person making the taxable transportation payment and is collectible by the person receiving such payment.

It is held that the cooperative association in the instant case, which was organized and is being operated for the purpose of marketing its members' produce, is not a `person engaged in the business of transporting property for hire,' within the meaning of section 4272(a) of the Code, with respect to the trucking services it furnishes to its members with its own trucks, where such services are incidental to its business of marketing the members' produce, and any charges made for such services are not subject to the tax on transportation of property. However, to the extent that the trucking services furnished by the association to its members and not a part of its business of marketing its members' produce and therefore are not considered as being incidental to its business of marketing, it is considered a `person engaged in the business of transporting property for hire' and any charges made for such trucking services are subject to tax.

Under the circumstances described, the trucking by the cooperative association of the members' produce to its general retail store is considered to be incidental to its business of marketing such produce, and any charge made to the members, or cost deducted from the profits inuring to the members, for such services are not subject to the transportation tax. However, since the trucking by the cooperative association of its members' milk to creameries is not a part of its business of operating the retail store, such trucking is not considered incidental to the association's business of marketing the produce of its members, and any charge made for such trucking services is subject to tax. See Rev. Rul. 55-571, page 465