Rev. Rul. 54-141

Advice is requested concerning the application of the tax on the transportation of persons imposed by section 3469(a) and (c) of the Internal Revenue Code in a situation where a resident of the United States intends to travel between two points in the United States and would normally make payment for such transportation in the United States but instead goes to Canada or Mexico to purchase this transportation and at the same time to purchase a separate ticket for transportation between a point in Canada or Mexico and a point in the United States for the ostensible purpose of having such `outside leg' as evidence of a journey from or to a point outside the United States. Advice is also requested as to the tax consequences where such resident purchases a through ticket instead of separate tickets.

In accordance with the provisions of section 3469(a) and (c) of the Internal Revenue Code the tax is imposed upon amounts paid without the United States on or after November 1, 1950, for the transportation of persons on or after such date, by rail, motor vehicle, water, or air which begins and ends in the United States and for seating or sleeping accommodations furnished in connection therewith.

Section 130.54(b) of Regulations 42 provides, in part, that the tax does not apply to a payment made outside the United States for transportation which begins or ends outside the United States. For purposes of the preceding sentence, a payment made outside the United States for transportation between two or more points within the United States (such transportation being referred to in such section as `the United States portion'), which is part of transportation from or to a point outside the United States is a payment for transportation which begins or ends outside the United States, where it is definitely established at the time of making payment for the United States portion that such portion is purchased for use in making the journey from or to a point outside the United States. The nontaxable character of the payment made outside the United States for the United States portion is to be established under the rules set forth in subparagraphs (2) through (5) of section 130.54(b), supra . In these rules the transportation to or from a point outside the United States is referred as `connecting transportation.'

It is held that a resident of the United States purchasing transportation under the circumstances described in the first paragraph has not, within the purview of section 130.54 of Regulations 42, purchased transportation which constitutes `connecting transportation' from or to a point outside the United States regardless of whether the separate ticket or the portion of the through ticket which represents the `outside leg' is used. Accordingly, the alleged connecting transportation between the point in Canada or Mexico and the point in the United States shall be disregarded in determining liability for the tax, and the payment made in Canada or Mexico for the transportation which begins and ends in the United States is subject to the tax on the transportation of persons.

The following examples will serve to illustrate the application of the foregoing:

1. A resident of Buffalo intends to travel by rail from Buffalo to New Orleans. He goes to Fort Erie, Ontario, Canada, and purchases his ticket for the trip from Buffalo to New Orleans. He also purchases in Fort Erie a bus ticket for transportation from Fort Erie to Buffalo in order to have an `outside leg' as evidence that his journey began at a point outside the United States. He uses the bus ticket for his return to Buffalo. The transportation by bus from Fort Erie to Buffalo does not constitute `connecting transportation.' Therefore, the amount paid in Fort Erie for the rail transportation from Buffalo to New Orleans is a payment for transportation which begins and ends in the United States and is subject to the tax.

2. A resident of Detroit intends to travel to Miami. He goes to Windsor, Ontario, Canada, by private automobile and purchases his ticket for transportation by air from Detroit to Miami. As evidence of an `outside leg' he also purchases in Windsor a rail ticket for transportation for Windsor to Detroit, but this ticket is not used since he returns to Detroit by private automobile. The ticket for the rail transportation from Windsor to Detroit does not constitute a ticket for `connecting transportation.' Therefore, the amount paid in Windsor for the air transportation from Detroit to Miami is a payment for transportation which begins and ends in the United States and is subject to the tax.

3. A resident of Detroit intends to travel to Dallas. For the purpose of having evidence of an `outside leg' for his trip he goes to Windsor, Ontario, Canada, and purchases a through ticket for transportation from Windsor to Dallas. He actually begins his trip in Windsor. The transportation between Windsor and Detroit is not `connecting transportation' and in determining liability for the tax is disregarded. Therefore, the tax applies to the payment made in Windsor for the transportation from Detroit to Dallas.

4. A resident of Los Angeles who intends to travel to New York goes by private automobile to Tijuana, Mexico, and there purchases a through ticket for transportation from Tijuana to New York. He returns to Los Angeles by private automobile and does not use the portion of the through ticket covering the transportation from Tijuana to Los Angeles which he had purchased as evidence of an `outside leg.' The amount paid in Tiajuana for the portion of the through ticket representing transportation from Los Angeles to New York is a payment for transportation which begins and ends in the United States, and is, therefore, subject to the tax.

Under the authority of section 3791(b) of the Internal Revenue Code, the conclusions stated in this Revenue Ruling will be applied without retroactive effect as to payments made prior to May 1, 1954, for the type of transportation herein discussed, except that any tax which has been paid on such payments will not be refunded.