Rev. Rul. 55-534

The Internal Revenue Service has been requested to state its position with respect to the application of the tax on transportation of persons, imposed by section 3469 of the Internal Revenue Code of 1939, to payments made by one carrier to another under the following circumstances.

In the instant case, X carrier contracts to transport the passengers in its own facilities from point of origin to their destination. Due to mechanical failure, the transportation movement is interrupted and X carrier is then obligated to have the passengers transported to their ultimate destination through the facilities of Y carrier. The persons being transported in this case are traveling on United States Government transportation requests.

Section 3469 of the Code imposes a tax upon amounts paid for the transportation of persons by rail, motor vehicle, water, or air. The tax is payable by the person making the payment subject to tax and is collectible by the person receiving such payment. Payments for the transportation of persons furnished to the United States upon United State Government transportation requests are exempt from the tax. (See authorization of the Secretary of the Treasury, dated June 20, 1947, C.B. 1947-2, 211, and Mim. 6194, C.B. 1947-2, 210.)

It is held that where the transportation of persons involves the services of two or more carriers, the tax applies only to the payments made by, or on behalf of, the passengers for the complete transportation service. The tax does not apply to payments made by the carriers between themselves in settlement of their charges for their respective services, even though the payments made to the initial carrier by or for the passengers may have been exempt from the tax. The initial carrier should in such cases furnish to the other carrier or carriers a certification that (a) the tax has been collected with respect to the amounts paid by or for the passengers for the complete transportation service, or (b) the payments made by or for the passengers were exempt from the tax. Such a certification by the initial carrier constitutes authority to the other carrier or carriers not to collect the tax.

Accordingly, in the instant case, the tax does not apply to the amounts paid by X carrier to Y carrier for transporting the passengers to their ultimate destination. At the time X carrier makes settlement with Y carrier for the services Y carrier performed, X carrier should certify that the passengers were traveling on United States Government transportation requests and that the payments for such transportation were therefore exempt