Rev. Rul. 58-160

The Internal Revenue Service has been asked whether, under the facts stated below, the amounts paid by a retail grocer to a trucking company for frozen food warehouse, assembly, and clerical services are subject to the tax on the transportation of property.

A trucking company has a contract with several retail chain food stores under which it performs transportation services. Under a separate contract, the trucking company performs so-called `other services' for these customers. These `other services' consist of frozen food warehousing, assembly, and clerical service in which the stocks of frozen foods that are owned principally by packers are stored and made available for an assembly operation whereby orders from retail chain food stores are assembled from these frozen food stocks.

To perform these services, the trucking company leases space in a public cold storage warehouse wherein serveral frozen food packers store large quantities of their products. This leased space, which is known as a `break-up' room, is used for storage and for the assembly of orders of frozen foods received from the retail grocers. The trucking company receives orders for the frozen foods from the retail grocers on specially designed order forms furnished by the trucking company. Merchandise is selected from the `break-up' room stock to fill those orders. The merchandise is brought to the loading platform after it has been assembled, checked, and marked to fill a particular order. Title to the products remains in the packer until they are loaded onto trucks for delivery to the grocer. The packer is advised by the trucking company of the quantities of his products that have been delivered to each of the retail grocers. The packer then bills each grocer directly for that merchandise. At the end of each week, the trucking company bills the grocer for the warehousing while the goods were in the break-up room, and for the assembly, and clerical services furnished, and makes a separate charge for the delivery of the order to the retail store.

Restocking of the `break-up' room is based upon estimated needs for filling the next day's orders. The merchandise is usually withdrawn from the public portion of the warehouse in standard warehouse pallet loads. Some items may remain in the `break-up' room for an indeterminate period of time depending upon orders from retail grocers. One of the customers has in its warehousing service agreement with the trucking company a provision requiring the trucking company to maintain stockpiles. Some of the merchandise which has been transferred from the public portion of the warehouse to the `break-up' room may be hauled by the customer or some other carrier after it has been assembled by the trucking company. Since the products moved to the `break-up' room are not intended for sale to a particular customer, the sale of the products by the packers does not occur at this time. Therefore, the stocks in the `break-up' room are still the property of the packers and the trucking company assumes a warehouseman's responsibility to the packers for all the merchandise in the `break-up' room.

Section 4271 of the Internal Revenue Code of 1954 imposes a tax upon the amounts paid for the transportation of property by rail, motor vehicle, water, or air, from one point in the United States to another. The tax is payable by the person making the taxable transportation payment and is collectible by the person receiving such payment. Section 143.1(d) of Regulations 113, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, defines the term `transportation' as used in the statute and regulations to mean the movement of property by a person engaged in the business of transporting property for hire, including interstate, intrastate, and intracity or other local movements. In general, it includes accessorial services furnished in connection with a transportation movement, such as loading, unloading, storage, handling and similar services and facilities.

The services described above are not merely assembling services but are actually a specialized type of warehouse service. The services furnished include the assembling of frozen foods to fill orders for delivery to retailers, but are much broader in scope than the assembling services normally furnished by a carrier. This is established by (1) the fact that the trucker does not merely withdraw from the public warehouse the quantity of merchandise necessary to fill orders on hand but withdraws on the basis of estimates of retailers needs and usually in standard warehouse pallet loads and stores such products in the `break-up' room until needed to fill particular orders, (2) the fact that the trucking company assumes a warehouseman's responsibility to the packers for all frozen foods withdrawn from the public portion of the cold storage warehouse and placed in the break-up room regardless of whether such merchandise is to be delivered by it or by another carrier, and (3) the nature and purpose of the records maintained by the trucking company.

Accordingly, it is held that the warehousing, assembling, and clerical services, described above, performed by the trucking company are not considered accessorial to the delivery services which it performs and the separate charges billed therefor are not subject to the tax on the transportation of property imposed by section 4271 of the Code.