Rev. Rul. 56-608

The Internal Revenue Service has been requested to furnish advice concerning the applicability of the tax on the transportation of property to payments by a shipper to a contract carrier for the movement of the shipper's products where the transportation equipment used by the contract carrier is owned by the shipper.

A corporation manufactures syrup which is delivered to its customers by tank trucks owned by the manufacturer, but operated by a motor vehicle carrier. The manufacturer owns and furnishes all of the tank truck equipment and pays the major repair bills. Under the terms of an agreement entered into by the manufacturer with the carrier, the carrier delivers the syrup to points of destination specified by the manufacturer. The agreement provides that the tank truck equipment shall be used solely for the purpose of delivering the manufacturer's product. The agreement provides further that the carrier shall operate the transportation equipment in its own name and through its own employees, who are under its exclusive control, management, and supervision, all as an independent contractor and not in the name of the manufacturer or as its agent. The carrier furnishes the drivers and helpers, pays their wages, Federal employment taxes and workmen's compensation insurance, and pays for the gasoline, oil, etc. The manufacturer pays the carrier for the service at a stipulated rate per hundred weight of syrup delivered. Under the agreement between them, the shipper has not retained any right of direction or control over the manner in which the services are to be performed by the carrier or his employees.

Section 4271(a) of the Internal Revenue Code of 1954 imposes a tax upon the amount paid for the transportation of property by rail, motor vehicle, water, or air from one point in the United States to another. Section 4272(a) of the Code provides that the tax shall apply 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, since the carrier is required to operate the tank truck equipment with its own employees under its own exclusive control, management, and supervision as an independent contractor and at its own expense and not in the name of or as an agent for the shipper, the carrier furnishes a transportation service for hire, irrespective of the fact that the shipper owns the tank truck equipment in which its product is transported by the carrier. Accordingly, under the circumstances, the transportation tax applies to the amounts paid to the carrier by the shipper for the transportation service.