Rev. Rul. 77-392

Advice has been requested whether the tax imposed by section 4261(a) of the Internal Revenue Code of 1954 on amounts paid for the transportation of persons by air applies to the service charge described below.

A person purchases from an airline agency a ticket in advance for taxable transportation between two points in a state in the United States. The ticket is to be used by another person located in a city other than the city in which the ticket is purchased. The agency adds to the price of the ticket a service charge covering the administrative cost of processing the paper work and the reservations connected with the transportation.

Section 4261(a) of the Code imposes a tax upon the amount paid for taxable transportation of any person by air. In the case of amounts paid outside of the United States for taxable transportation, the tax imposed by section 4261(a) applies only if such transportation begins and ends in the United States.

Under section 4261(d) of the Code and section 49.4261-10 of the Facilities and Services Excise Tax Regulations, the tax imposed by section 4261(a) is to be paid by the person making the payment subject to the tax and is collectible by the person receiving such payment.

Section 49.4261-7 of the regulations cites examples of payments for transportation that, unless otherwise exempt, are subject to tax. Section 49.4261-7(c) provides that amounts paid as additional charges for changing the class of accommodations, changing the destination or route, extending the time limit of a ticket, as "extra fare," or for exclusive occupancy of a section, etc., are subject to the tax. Section 49.4261-7(f) provides that the tax applies to the amounts paid for prepaid orders, exchange orders, or similar orders for transportation, and to additional amounts paid in procuring transportation in connection with the use of prepaid orders, exchange orders, or similar orders.

The service charge made by the airline agency in this case is an additional charge made in connection with processing the ticket for the prepaid transportation and securing the reservation in the other city for such transportation. Accordingly, the amount paid for the service charge is a payment for taxable transportation and is subject to the tax imposed by section 4261(a) of the Code. The tax attaches at the time payment is made to the agency by the person purchasing the ticket and is collectible by the agency at that time, irrespective of the fact the transportation is to be furnished to another person at a later date and at a different location.