Rev. Rul. 68-343

Advice has been requested concerning the applicability of the excise tax on the transportation of persons by air, imposed by section 4261(a) of the Internal Revenue Code of 1954, under the circumstances described below.

In accordance with an agreement between X company and several other companies, X company purchased an airplane with its own funds, took title to, and registered the plane in its own name. These companies, hereafter referred to as `participating' companies, include X company, its wholly-owned subsidiary, and several other companies in which the stockholders of X company have a substantial interest. The plane is used to transport, within the United States, executives and managerial employees of the `participating' companies. The pilot was hired with concurrence and approval of each `participating' company, but is on the payroll of X company. Each `participating' company uses the plane as the need arises. The plane is operated at the direction of the company using the plane, subject to the discretion of the pilot as to safety requirements. Pursuant to a mutual agreement, each `participating' company pays its share of the annual operating expenses, which includes the pilot's salary, repairs, taxes, fuel, oil, insurance, and depreciation. Each `participating' company's share of operating expenses is computed on the percentage of use of the plane by the company. Each of the companies other than X pay their share of the operating expenses to X company.

Section 4261 of the Code imposes a tax on amounts paid for taxable transportation. The tax imposed by that section, except in certain cases not here relevant, is to be paid by the person marking payment for the service.

Revenue Ruling 60-311, C.B. 1960-2, 341, states that where the owner of a vehicle (such as a helicopter) leases it to others for the transportation of persons but retains the elements of possession, command, and control of the vehicle and performs all services in connection with the operation of the vehicle, he is furnishing a taxable transportation service within the meaning of section 4261 of the Code.

Since the title and registration of the plane is in the name of X company and the pilot is on its payroll, X company is deemed to have the elements of possession, command, and control of the plane at all times, irrespective of the fact that the other `participating' companies may direct the pilot as to destination and other details concerning actual flights when they are using the plane. Therefore, X company is furnishing a transportation service to the other `participating' companies, and payments made by the `participating' companies for their respective shares of the operating expenses are amounts paid for transportation service. Accordingly, the tax imposed by section 4261(a) of the Code applies to such amounts paid to X company by the other `participating' companies. However, the tax does not apply to the portion of the operating expenses borne by X company.

It should be noted that section 4263(d) of the Code provides an exemption from the tax on the transportation of persons for certain small aircraft when not operated on established lines.