Rev. Rul. 59-292

Advice has been requested regarding the applicability of the tax on the transportation of property to amounts paid for transportation services rendered under the circumstances described below.

The M Drilling Company, a partnership, operates trucks which are used primarily for moving and rigging its own tools, but frequently are used to move the property of the N Drilling Company and the O Oil Company, and to a lesser extent the property of others. The latter two companies are also partnerships, having as partners certain persons having an ownership interest in all three of the partnerships. M company is owned by partners A, B, C , and D; N company is owned by partners A and E; and O company is owned by partners A, B , and C .

Section 4271(a) of the Internal Revenue Code of 1954, prior to its repeal by Public Law 85-475, 72 Stat. 259, C.B. 1958-3, 73, imposed a tax on the amount paid within or without the United States 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 provided that the tax applied only to amounts paid to a person engaged in the business of transporting property for hire. The tax was payable by the person making the taxable transportation payment and was collectible by the person receiving such payment.

Section 143.1(b) of Regulations 113, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, defines the term `person engaged in the business of transporting property for hire' to include a common carrier, contract carrier, local moving or drayage concern, freight forwarder, express company, or other person transporting property for hire wholly or in part by rail, motor vehicle, water, or air.

Revenue Ruling 58-157, C.B. 1958-1, 444, holds that if a person transports property for others as a regular practice and makes a charge therefor, he is considered to be engaged in the business of transporting property for hire even though such business may not constitute his principal business or means of livelihood.

In the instant case, M company, N company and O company are separate and distinct partnerships. Moreover, the fact that the transportation is performed by M company only for close business acquaintances as an accommodation, or that certain of the partners in M company are also partners in N company and O company does not take the transportation performed by M company out of the scope of the taxing statute.

Accordingly, it is held that to the extent that M company transports the property of the other semi-related partnerships, and the property of others, for compensation, it is a `person engaged in the business of transporting property for hire' within the meaning of section 4272(a) of the Code. Therefore, the amounts paid to M company for such transportation services are properly subject to tax.