Rev. Rul. 67-92

Advice has been requested whether revenue derived from two described scribed forms of transportation service is revenue derived from `scheduled common carrier public passenger land transportation service along regular routes,' for purposes of the allowance provided by section 6421(b) of the Internal Revenue Code of 1954 for manufacturers excise tax paid on gasoline used in the operation of local transit systems.

Among the sources of revenue of the transportation company in question are revenues derived from the two types of service described below.

Service A .-A passenger bus service rendered under contract with a railway company. Under the contract the transportation company furnishes to the railway's employees local scheduled bus transportation to and from the railway termainal. The railway pays an annual fee for the service.

Service B .-A limousine service between downtown hotels and an airfield. It is a deluxe-type service using recliner seat buses operating on schedule, and the fare charged exceeds 60 cents. By virtue of that fact, none of the revenue derived from the service qualifies as `commuter fare revenue,' as that term is defined in section 6421(d)(2) of the Code. This service is operated as a separate department of the transportation company. Separate equipment and employees are used, and separate accounting is maintained.

Section 4081 of the Code imposes a manufacturers excise tax on gasoline sold by the producer or importer thereof, or by any producer of gasoline.

Section 6421(b) of the Code provides for an allowance for gasoline used during a calendar quarter by the ultimate purchaser thereof in vehicles furnishing scheduled common carrier public passenger land transportation service along regular routes, provided at least 60 percent of the total passenger fare revenue derived from such service is commuter fare revenue, as defined in section 6421(d)(2) of the Code.

Section 48.6421(b)-1(b) of the Manufacturers and Retailers Excise Tax Regulations provides, in part, that for purposes of the allowance provided by section 6421(b), in determining whether the `60-percent passenger fare revenue test' is met in a particular calendar quarter, there shall not be included as revenue derived from the operation of `scheduled common carrier public passenger land transportation service along regular routes,' revenue from such sources as charter fees, rentals of property, advertising receipts, etc.

Apart from any question of qualification as `commuter fare revenue' under section 6421(b)(2), the revenue derived from Service A does not qualify as revenue derived from `scheduled common carrier public passenger land transportation service along regular routes' under section 6421(b) of the Code. An essential element of this type of service is that it be `public' in nature. A `public' transportation service is a service available to the general public, and is usually operated under a public franchise. The arrangement between the railway company and the transportation company is a private contract under which a private bus transportation service is rendered. Accordingly, since revenue derived from this service does not qualify as revenue derived from `scheduled common carrier public passenger land transportation service along regular routes,' no part thereof is subject to the allowance provided for by section 6421(b)(1) of the Code.

Service B , on the other hand, does qualify as `scheduled common carrier public passenger land transportation service along regular routes.' Therefore, the revenue derived from this service must be included in the 60-percent passenger fare revenue test under section 6421(b)(2), even though none of such revenue qualifies as `commuter fare revenue' within the meaning of section 6421(d) of the Code. Furthermore, the fact that Service B is conducted as a separate operation of the transportation company does not entitle the company to exclude revenue derived from the service from its computation of the passenger fare revenue.

These conclusions are equally applicable under section 6416(b)(2)(H) of the Code, in computing the passenger fare revenue for allowance with respect to retailers excise tax paid under section 4041 of the Code, on diesel fuel or special motor fuel used in the operation of local transit systems.