Rev. Rul. 60-311

Advice has been requested concerning the applicability of the excise tax on the transportation of persons to payments made under the circumstances described below.

An oil company entered into contracts, designated as leases, under the terms of which it leases helicopters from various companies for use in geophysical prospecting for petroleum in certain regged and remote areas. Geophysical prospecting involves the analysis of the sub-surface of the earth by the study of various physical data obtained through the use of complex and delicate instruments. In these areas where geophysical prospecting is being conducted, the oil company establishes a base camp near the sites where ground surveys are to be made. The leased helicopters are stationed at the base camp and are used for transporting personnel and equipment between the camp and the sites where the surveys are being made. The helicopters are also used to transport supplies and are available for aerial surveys and aerial navigation necessary for the conduct of the company's explorations and activities. The personnel and equipment are flown into the base camps by fixed wing aircraft, and operations with the helicopters begin after the arrival of the personnel and equipment.

Under the terms of the contracts between the oil company and the various helicopter rental companies, the rental companies agree to make available a helicopter and pilot for the exclusive use of the oil company. The pilot and the helicopter must meet the qualifications set by the lessee. The rental companies also agree to furnish an experienced mechanic, the mechanical parts, and the services and facilities necessary to keep the helicopters in good operating condition. Decisions as to the time and place for operations are made by the lessee, while decisions regarding load limits, weather conditions, etc., are the responsibility of the pilots of the helicopters.

Various methods are used in determining the consideration to be paid to the rental companies by the lessee. The methods of payment include (1) a guaranteed minimum monthly fee for a scheduled number of hours of flying service per month, plus an additional amount for each hour flown in excess of the scheduled hours, (2) a guaranteed monthly fee plus an additional amount for each flying hour, and (3) a certain sum for each flying hour. In addition, the lessee agrees to supply and deliver, at its own expense, all gas, oil, and lubricants used in the helicopters. The rental companies agree to accept responsibility for all losses, damages, expenses, liability, and claims resulting from their performance of the contracts.

Section 4261(a) of the Internal Revenue Code of 1954 imposes a tax upon the amount paid within the United States for taxable transportation of persons by rail, motor vehicle, water, or air.

Where the owner of a vehicle (such as a helicopter) leases it to others for the transportation of persons but retains possession, command, and control of the vehicle, he is furnishing a taxable transportation service within the meaning of section 4261 of the Code. However, where the owner of the vehicle transfers the complete possession, command, and control of his vehicle to a lessee, either by a charter-party or by actual practice, the owner is not engaging in a taxable transportation service but is merely leasing his vehicle. See Rev. Rul. 56-45, C.B. 1956-1, 521; Rev. Rul. 56-608, C.B. 1956-2, 878; Rev. Rul. 57-545, C.B. 1957-2, 749; and Rev. Rul. 58-215, C.B. 1958-1, 439.

Accordingly, in the instant case, it is held that, since the helicopter rental companies retain the elements of possession, command, and control of the helicopters and perform all services in connection with the operation of the helicopters, they are, in fact, furnishing taxable transportation to the lessee. Therefore, the tax on the transportation of persons applies to the portion of the total payment which is allocable to the transportation of persons, provided such allocation is made on a fair and reasonable basis and can be supported by proper records. If no allocation is made, the tax applies to the total payment for the lease of the helicopters. See Rev. Rul. 60-63, C.B. 1960-1, 548.

It is further held that the total payment for transportation service includes not only cash payments but also payments in kind. Therefore, where a company receiving transportation service supplies the carrier with items which represent necessary elements of transportation (such as gas, oil, lubricants, equipment, or insurance), such items are considered to be payments for transportation. Accordingly, in the instant case, the total payment for the lease of the helicopters includes the cost of the gas, oil, and lubricants supplied by the lessee to the rental companies, as well as the cash amount paid to the rental companies by the lessee.

It should be noted, however, that section 4263(f) of the Code, as added by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, effective January 1, 1959, provides an exemption from the tax on the transportation of persons for certain small aircraft when operated on nonestablished lines. This exemption applies to helicopters qualifying under the statutory rules as well as to other types of aircraft.