Rev. Rul. 78-75

Advice has been requested whether the status of an aircraft operator as a "commercial operator" under Federal Aviation Administration regulations is determinative in applying the aviation fuel taxes and the transportation of persons and property taxes imposed by sections 4041(c), 4261, and 4271 of the Internal Revenue Code of 1954, respectively.

Section 4041(c) of the Code imposes a tax on gasoline and any other liquid either (1) sold by any person to an owner, lessee, or other operator of an aircraft, for use as a fuel in such aircraft in noncommercial aviation, or (2) used by any person as a fuel in an aircraft in noncommercial aviation, unless there was a taxable sale of such liquid under this section.

The taxes on transportation of persons and property imposed by sections 4261 and 4271 of the Code apply unless there is a specific exemption provided, notably the exemptions in section 4281 for transportation by small aircraft not operated on an established line, and in section 4282 for transportation for other members of an affiliated group.

Under the provisions of section 4041(c)(4), the term "noncommercial aviation" means any use of aircraft other than use in a business of transporting persons or property by air for compensation or hire. The term also includes any use of an aircraft, in a business described in the preceding sentence, that is allocable to any transportation exempt from the taxes imposed by sections 4261 and 4271 by reason of sections 4281 or 4282. The use of aircraft for transporting persons or property for compensation would be commercial aviation and the taxes imposed by section 4261 or 4271 would generally apply to such use, subject to the exemptions referred to above.

The meaning of commercial aviation and noncommercial aviation within the purview of the FAA regulations is not consistent with the provisions of sections 4041(c)(4), 4261, or 4271 of the Code.

Under FAA Regulations, Title 14 CFR, Part 1, "commercial operator" is defined as a person who, for compensation or hire, engages in the carriage by aircraft in air commerce of persons or property, other than as an air carrier or foreign air carrier or under the authority of Part 375 of Title 14. Where it is doubtful that an operation is for "compensation or hire," the test applied is whether the carriage by air is merely incidental to the person's other business or is, in itself, a major enterprise for profit.

Accordingly, since a "commercial operator" under FAA regulations may or may not, depending on the particular circumstances, be engaged in noncommercial aviation, as this term is defined in the Internal Revenue Code, the status of such operator under the FAA regulations is not determinative in applying the aviation fuel taxes and transportation taxes imposed by sections 4041(c), 4261, and 4271, respectively.