Rev. Rul. 56-482

Advice has been requested whether the exemption from tax on the transportation of persons with respect to transportation furnished to a state, provided by section 4292 of the Internal Revenue Code of 1954, applies to payments made for transportation in the situations described below.

1. A school, operated by a state, engages a person to speak before the student body. It agrees to pay the speaker a specified sum and, in addition, to reimburse him for the actual travel expense incurred by him.

2. A school, also operated by a state, arranges with a booking agent for a concert group to perform for the student body. It agrees to pay the booking agent a flat sum, no part of which is specified to cover the travel expenses of the group.

Under the provisions of section 4292 of the Code, the tax on transporation of persons does not apply to any payment received for transportation or facilities furnished to the government of any state, territory of the United States, or any political subdivision of the foregoing, or the District of Columbia. Therefore, transportation furnished to a school operated by a state comes within the purview of the exemption provided by that section.

It is held that, since under the circumstances in situation (1) above, the state operated school pays the speaker a specified sum for his services and, in addition, reimburses him for the actual travel expense incurred by him, the payment made by the speaker for such transportation constitutes payment for transportation furnished to a state within the meaning of section 4292 of the Code and, accordingly, is exempt from tax on the transportation of persons. The right to exemption in such case must be established by Form 731, Exemption Certificate, executed by an official of the school. The certificate should designate the limits of the travel and should be forwarded to the speaker for presentation to the agent of the carrier at the time he makes payment for the transportation. The school should also furnish the speaker a letter or other written evidence which will disclose that he is the person on whose behalf the certificate is issued.

It is further held that since, under the circumstances in situation (2) above, the school pays to the booking agent a flat sum for the appearance of the concert group and no part of that sum represents specific reimbursement for the actual travel expenses incurred by the group, the payment made by the group, or by the booking agent in their behalf, constitutes payment for transportation furnished the group and not for transportation furnished to a state within the meaning of section 4292 of the Code. Accordingly, the tax on the transportation of persons applies to amounts paid for such transportation.