Rev. Rul. 57-195

A payment was made in Canada for round-trip air transportation from Montreal, Canada, to New York City. Under the provisions of section 4261(b) of the Internal Revenue Code of 1954, this payment is excluded from the tax on the transportation of persons. Because of bad weather, the airline found it necessary to cancel the return flight from New York City to Montreal, and the passenger was given a refund on the return portion of his round-trip air transportation. The passenger then purchased, in the United States, rail transportation from New York City to Montreal. Held , the tax on the transportation of persons imposed by section 4261(a) of the Code applies to the amount paid within the United States for the rail transportation from New York City to Montreal. The facts that the passenger of the airline had originally purchased tax-exempt, round-trip, air transportation in Canada and his purchase of rail transportation was necessitated by circumstances beyond his control does not exempt him from paying the tax on the payment made to the rail carrier in the United States. Compare Revenue Ruling 55-534, C.B. 1955-2, 665, in which it was held that the tax on the transportation of persons does not apply to settlements between carriers, even though the payments made to the initial carrier by or for the passengers may have been exempt from the tax.