Rev. Rul. 57-223

Advice has been requested whether, under the circumstances described below, amounts paid for the transportation of steel bars and other materials to a fabrication plant, where they are processed into steel bridge railings to be delivered to a state or political subdivision of a state, including an agency or instrumentality thereof, are exempt from the tax on transportation of property.

A contractor, who was engaged by a state highway department to construct a bridge, ordered the fabricated steel bridge railings required for the project from a structural steel fabrication company. Upon receipt of the order, the fabrication company purchased from a steel mill the steel bars and other materials necessary to produce the specific railings covered by the order. The fabrication company paid a trucking company for the transportation of the steel bars and other materials from the steel mill to its plant. After the steel bars and other materials were processed into bridge railings, the bridge railings were transported from the fabrication plant to the bridge project site consigned to the state highway department, in care of the contractor, pursuant to appropriate instructions issued by the state highway department authorizing such procedure. The fabrication company paid a trucking company for such transportation.

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 4292 of the Code provides that this tax shall not apply to any payment received for transportation services or facilities furnished to the government of a state, territory of the United States, or any political subdivision of the foregoing, or the District of Columbia. That section also provides that the tax shall not be imposed upon amounts paid for the transportation of property to or from such a governmental unit.

Section 143.24 of Regulations 113, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, proivdes that an amount paid directly to a carrier by a state, or political subdivision thereof, for the transportation of property is exempt from the tax. That section further provides that an amount paid for the transportation of property to or from the government of a state, territory of the United States, or political subdivision thereof, or the District of Columbia, is exempt from the tax. Where the shipping papers show the consignor or consignee to be a state, territory, or political subdivision thereof, or the District of Columbia, or an agency or instrumentality of any of the foregoing, such papers may be accepted by the carrier as proof of the exempt character of the shipment.

In the instant case, the amount paid for the transportation of the bridge railings from the fabrication plant to the bridge project site is exempt from the tax as being an amount paid for transportation of property to a state. See Rev. Rul. 55-162, C.B. 1955-1, 541. However, the purchase order for the state project was for finished bridge railings rather than raw materials, and fabrication was the step which produced such finished product. Accordingly, the transportation of the steel bars and other raw materials from a point of origin to the fabrication plant constitutes transportation of property to the fabrication company and not to the state. The fact that the movement of the finished product from the fabrication plant to the state is exempt from the tax does not affect the applicability of the tax to amounts paid for the movement of the raw materials from a point of origin to the plant where they are processed into the finished product. Nor does the fact that the transportation charges may be reflected in the purchase price of the finished product paid by the state, in itself, exempt the payment of the transportation charges from the tax.

It is held that, since the transportation of the steel bars and other materials from the steel mill to the fabrication plant is not transportation of property to a state or political subdivision of a state within the meaning of section 4292 of the Code, the amount paid by the fabrication plant to the carrier for such transportation is not exempt from the tax on transportation of property, even though the finished bridge railings were for delivery to a state.