Rev. Rul. 57-148

Advice has been requested whether a carrier, who is on the accrual basis for Federal income tax purposes, becomes liable for the excise tax on the transportation of oil by pipeline at the time when the transportation service is furnished by the carrier or when the payment for the transportation is received by the carrier from its customer. The charge for the service is entered on the carrier's books as an item of accrued income at the time the service is rendered and the customer is billed. However, payment for the service often is not received until a subsequent quarter, which in some cases may be in a subsequent year.

Section 4281 of the Internal Revenue Code of 1954 imposes upon all transportation of crude petroleum and liquid products thereof by pipeline a tax equivalent to four and one-half percent of the amount paid for such transportation. The tax imposed by this section is to be paid by the person furnishing such transportation.

It is held that where a charge is made by a carrier for the transportation of oil by pipeline, the carrier's liability for the excise tax does not arise until the payment for the transportation is received by the carrier from its customer. Accordingly, the tax should be reported on the excise tax return for the quarter during which the payment is received.

Since the carrier's liability for the excise tax does not arise until it receives payment for the transportation, it follows that the tax may be accrued as an expense deduction for Federal income tax purposes only at that time and not at the time of furnishing the transportation or billing the customer.