Rev. Rul. 72-245

Advice has been requested as to the applicability of the $3 "head tax" imposed on the use of international air travel facilities by section 4261(c) of the Internal Revenue Code of 1954, in the situations described below. In each situation the air transportation involved begins but does not end in the United States or the 225-mile zone referred to in section 4262(a) of the Code.

Situation (1).--An airline furnishes its employees air transportation free of any charge while on official company business, or while engaged in personal travel.

Situation (2).--An airline employee is issued a ticket by the employer airline "free of charge" for use while engaged in personal travel. Since the employee is not travelling on official company business, a handling or service charge is made for the expense of handling the ticket request.

Situation (3).--An airline issues tickets "free of charge" to tour conductors accompanying groups of tourists. In some instances, a single amount is charged for the air transportation of the group. In other instances, a separate charge is made for each member of the group.

Section 4261(c) of the Internal Revenue code of 1954 imposes a tax of $3 upon any amount paid (whether within or without the United States) for any transportation of any person by air, if such transportation begins in the United States. This tax does not apply if the air transportation is fully taxable under section 4261(a) of the Code.

Section 4261(a) of the Code imposes a tax of 8 percent upon the amount paid for taxable transportation (as defined in section 4262) of any person. In the case of amounts paid outside of the United States for taxable transportation, this tax applies only if such transportation begins and ends in the United States.

Section 4262(a) of the Code defines "taxable transportation" as (1) transportation by air which begins in the United States or in the 225-mile zone (that portion of Canada and Mexico which is not more than 225 miles from the nearest point in the United States) and ends in the United States or in the 225-mile zone, and (2) in the case of transportation other than transportation described in (1), that portion of such transportation which is directly or indirectly from one port or station in the United States to another port or station in the United States, but only if such portion is not a part of uninterrupted international transportation.

In Situation 1, where an airline furnishes an employee the use of its international air travel facilities entirely free of charge, it is held that the $3 tax imposed by section 4261(c) of the Code does not apply, since there is no "amount paid" for transportation, within the meaning of section 4261(c).

The air transportation tax consequences of charges, such as the handling or service charges described in Situation 2, are discussed in Revenue Ruling 70-381, C.B. 1970-2, 270. That ruling holds that charges of this type are taxable as amounts paid for air transportation for purposes of the taxes imposed by section 4261 of the Code. Accordingly, it is held that an airline employee traveling under the circumstances described in Situation 2 is liable for the $3.00 tax imposed by section 4261(c) of the Code.

In Situation 3, the $3 tax imposed by section 4261(c) of the Code clearly applies to each tourist, whether the payment for transportation is by individual amounts or in lump sum. With respect to the tour conductor, since the condition under which he travels "free of charge" is that he accompany tourists who are required to pay for transportation, implicit in the amounts paid by the tourists is an "amount paid" for the tour conductor's transportation. Accordingly, it is held that the tour conductor is also liable for the $3 tax imposed by section 4261(c) of the Code.