Rev. Rul. 58-591

Advice has been requested whether the amounts paid for certain extra services provided by a bus company, under the circumstances described below, are subject to the tax on the transportation of persons.

A bus company which operates in interstate commerce as a motor common carrier of passengers offers a so-called `luxury service' on certain runs. On the busses offering the luxury service, an attending stewardess is provided; soft drinks, coffee, and sandwiches are served; magazines are available; and the use of an electric razor is provided. Each passenger desiring to take advantage of the luxury service must purchase a regular first class ticket and, in addition, a second ticket evidencing the charge for the special services. No portion of the special service charge represents the privilege of occupying a reserved seat. The charge for occupying a reserved seat is included in the cost of the first class ticket on which the tax on the transportation of persons is paid. The special service charge is recorded separately on the books of the bus company.

Section 4261(a) of the Internal Revenue Code of 1954 imposes a tax upon the amount paid within the United States for taxable transportation (as defined in section 4262) of any person by rail, motor vehicle, water, or air. Section 4261(c) of the Code imposes a tax upon the amount paid for seating or sleeping accommodations in connection with transportation with respect to which a tax is imposed by section 4261(a) of the Code.

Section 42.4261-2(d) of the Facilities and Services Excise Tax Regulations provides that where a payment covers charges for nontransportation services as well as for transportation of a person such as charges for meals, hotel accommodations, etc., the charges for the nontransportation services may be excluded in computing the tax payable with respect to such payment, provided such charges are separable and are shown in the exact amounts thereof in the records pertaining to the transportation charge. If the charges for nontransportation services are not separable from the charge for the transportation of the person, the tax must be computed on the full amount of the payment.

Section 42.4261-8(f)(4) of the regulations provides that charges for admissions, guides, meals, hotel accommodations, and other nontransportation services are exempt from the tax where such charges are separable from the payment for the transportation of a person and are shown in the exact amount thereof on the records pertaining to the transportation payment.

Revenue Ruling 58-60, C.B. 1958-1, 436, holds that where a sightseeing company furnishes, in addition to the driver of the vehicle, a separate guide-lecturer for a sightseeing tour, the services performed by the guide-lecturer constitute nontransportation services and the charges for such services may be excluded from the total charge for the tour in determining the basis for computing the tax on the transportation of persons. It is contended that there is no valid distinction between a charge for a `guide' as discussed in Revenue Ruling 58-60 and a charge for a `hostess' or `stewardess' used on the luxury runs described above.

The charges made by certain carriers for various classes of accommodations include the services of employees, such as porters and stewards, to attend to the passengers' wants, and some carriers provide more elaborate equipment and facilities for the use of the passengers purchasing the better classes of accommodations. Nevertheless, the tax is imposed upon the `amount paid' for the transportation and seating or sleeping accommodations without regard to the class of accommodations purchased. Therefore, under the provisions of the statute, the amount of tax a passenger is required to pay is to be measured by the total charge made by the carrier for the particular class of accommodations the passenger purchases without regard to the specific nature of the services performed by employees provided by the carrier to attend to the passengers' wants, or to the particular types of facilities provided by the carriers for the use of the passengers while they are being transported. Services performed by employees, such as porters, stewards, stewardesses, etc., provided by a carrier to attend to the passengers' wants while they are being transported are clearly not services of the same nature as those described in Revenue Ruling 58-60 which are performed by a separate guide-lecturer on a sightseeing tour.

In the instant case, it is held that, with the exception of the portion of the special service charge which represents the charge for sandwiches, soft drinks, and coffee served to a passenger, the entire amount paid by a passenger utilizes the luxury service constitutes a payment for transportation and for seating accommodations within the meaning of section 4261 of the Code. Accordingly, only the charge for food and drink is excludable from the total payment for the luxury service in computing the tax payable with respect to such payment. In order for such charge to be excluded, it must be separable from the payment for the transportation of a person and be shown in the exact amount thereof on the records of the bus company pertaining to the transportation charge.