Rev. Rul. 56-294

In Revenue Ruling 55-753, C.B. 1955-2, 468, it is held that where a person operating a sales agency, repair shop, or service station tows disabled automobiles on which he does not make the necessary repairs, he is to the extent of such towing a person engaged in the business of transporting property for hire, and the tax applies to the charges made for such towing.

The Internal Revenue Service has now been asked whether payments for towing automobiles when the towing is performed, pursuant to a contract with a city or county, under orders of the police department are subject to the tax on transportation of property, or whether such payments are considered payments for transportation to or from a State or political subdivision thereof, and therefore are exempt from tax. The towing contracts include towing automobiles illegally parked or abandoned, those involved in accidents and impounded for safekeeping, and those parked on streets from which snow is to be removed. The towing charges are paid by the owners of the automobiles.

Section 4292 of the Internal Revenue Code of 1954 provides, in part, that no tax shall be imposed on amounts paid for the transportation of property to or from the Government of any State, Territory of the United States, or any political subdivision of the foregoing, or the District of Columbia.

It is held that the towing of automobiles when performed pursuant to a contract with a city or county and under orders of the police department constitutes transportation to or from a political subdivision of a State within the meaning of section 4292 of the Code. Under such circumstances, the fact that no repairs are made on the automobile by the person who tows it, or that its owner pays the towing charge, has no bearing on the case. Accordingly, payments for such towing are exempt from the tax on transportation of property.