Rev. Rul. 58-206

Advice has been requested concerning the proper handling of a shipper's insurance allowance with respect to the computation of the excise tax on the transportation of property.

A carrier provides transportation services which ordinarily include cargo insurance protection paid for by the carrier, such costs being included in the charge made for transportation. However, several shippers obtain their own insurance protection. In such instances, the carrier makes a percentage deduction, called an insurance allowance, from the transportation charge.

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.

In the instant case, where the carrier includes insurance protection as a part of the transportation service he furnishes, the tax applies to the entire amount paid to the carrier for that service, without any reduction for that portion of the amount charged by the carrier to cover his cost of the insurance. However, where the shipper obtains his own insurance, the carrier is, in effect, providing the transportation service without insurance protection, and the tax should be based upon the actual amount paid by the shipper for that transportation service.

Therefore, it is held that where the shipper obtains his own cargo insurance protection, and in turn is given an allowance therefor by the carrier, the excise tax on the transportation of property applies to the actual amount paid by the shipper after the deduction for the insurance allowance.