Rev. Rul. 55-762

Advice has been requested whether the tax on the transportation of persons, imposed by section 3469(a) of the Internal Revenue Code of 1939, applies to a time payment differential which is paid in excess of the established cash fare under a time payment plan for the sale of tickets.

A carrier sells tickets on a deferred payment basis in accordance with a tariff published and filed with the appropriate regulatory agency. Under the terms and conditions of the tariff, the applicant for transportation must make a cash down payment of not less than ten percent of the applicable cash fare for the journey. He must execute a negotiable note, payable in equal monthly installments, for the unpaid balance plus a time payment differential. This time payment differential, which is separately defined and determined in the tariff, is a variable amount dependent upon the amount of the unpaid balance and the number of monthly installments in which the note is payable. For example, if the cash fare for a particular journey is $100, the applicant for transportation on the time payment plan must make a down payment of not less than $10. If he desires to pay the balance in three equal monthly installments and makes the minimum down payment of $10, he must execute a negotiable note covering the unpaid balance, or $90, plus the time payment differential determined from the tariff, which is $3, thus making a total of $93. On the other hand, if he should desire to pay the note in ten monthly installments, the time payment differential determined from the tariff would be $9, making a total of $99.

A financial institution has agreed to discount each note on a basis which will yield to the carrier a net amount equal to the applicable fare determined without regard to the time payment plan.

Under these circumstances, the time payment differential is directly attributable to the fact that payment is to be made in installments instead of in cash and it is confined to or representative of the added expense incurred by the carrier in selling tickets on the time payment plan. Accordingly, it is held that the time payment differential is not a part of the amount paid for the transportation of persons within the meaning of section 3469(a) of the Code. The carrier is not required to collect the tax on such time payment differential, provided it is shown separately from the transportation charges in the carrier's records. However, the tax applicable to the established cash fare for a particular journey must be collected from the applicant at the time the carrier receives the cash down payment and the negotiable note covering the balance.