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Revenue Ruling

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 Rev. Rul. 64-55

1964-1 C.B. 94

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Federal income tax treatment, of the gross receipts license tax imposed by the City of St. Louis on the sale or distribution of gas for heating, lighting, power, and refrigeration pursuant to section 155.040 of the Revised Code of St. Louis, 1960.

Full Text

Rev. Rul. 64-55

Advice has been requested whether the tax imposed by the City of St. Louis on the retail sales of gas pursuant to section 155.040 of the Revised Code of St. Louis, 1960, is deductible by the consumer for Federal income tax purposes.

The pertinent provisions of section 155.040 of the Revised Code of St. Louis, 1960, are as follows:

GROSS RECEIPTS LICENSE TAX.--Every person engaged in the business of selling or distributing natural, artificial, or mixed natural and artificial gas for heating, lighting, power and refrigeration in the City shall pay the City, as a license tax, a sum equal to 5 per cent of the gross receipts from such business.

The Public Service Commission of Missouri, on January 17, 1962, issued a report and order which requires that a vendor set out as a separate item on the statements sent by it to its customers the amount of any gross receipts license tax which is imposed by a city.

Section 164(a) of the Internal Revenue Code of 1954 provides that, in computing taxable income, there shall be allowed as a deduction taxes paid or accrued within the taxable year, with certain exceptions not here material.

Section 164(c)(1) of the Code relates to the deduction of retail sales taxes and gasoline taxes in computing taxable income. Such section provides that, in the case of any State or local sales tax, if the amount of the tax is separately stated, then, to the extent that the amount so stated is paid by the consumer (otherwise than in connection with the consumer's trade or business) to his seller, such amount shall be allowed as a deduction to the consumer as if it constituted a tax imposed on, and paid by, such consumer.

Section 164(c)(2) of the Code provides that, as used therein, the term "State or local sales tax" means a tax imposed by a State, Territory, a possession of the United States, or a political subdivision of any of the foregoing, or by the District of Columbia, which tax (1) is imposed on persons engaged in selling tangible personal property at retail (or on persons selling gasoline or other motor vehicle fuels at wholesale or retail) and is a stated sum per unit of property sold or is measured either by the gross sales price or by the gross receipts from the sale, or (2) is imposed on persons engaged in furnishing services at retail and is measured by the gross receipts from furnishing such services.

Section 1.164-1 of the Income Tax Regulations provides that, in general, taxes are deductible only by the persons upon whom they are imposed.

Since the tax provided by section 155.040 of the Revised Code of St. Louis is imposed upon the sale of gas for heating, lighting, power, and refrigeration, it constitutes a "retail sales" tax within the meaning of section 164(c)(2) of the Code. The retail sales tax when collected by a vendor from a purchaser is includible in the vendor's income for Federal income tax purposes and is deductible by him under section 164(a) of the Code in computing his taxable income.

It is further held that since the Public Service Commission of Missouri is an administrative agency which acts as an arm of the legislature of that State, its requirement that the vendor "separately state" the tax is sufficient authority to satisfy the "separately stated" provisions of section 164(c)(1) of the Code.

Accordingly, effective January 17, 1962, the retail sales tax imposed by the City of St. Louis under section 155.040 of the Revised Code of St. Louis, 1960, may be deducted by the consumer who pays the tax (otherwise than in connection with his trade or business) in computing taxable income, provided the taxpayer concerned itemizes his deductions and does not elect to use the standard deduction or compute his tax by the use of the optional tax table.

Where the tax is paid with respect to gas used in a trade or business, such tax becomes a part of the cost of the gas purchased and in the case of an individual, is deductible in accordance with section 162(a) and section 62 of the Code. In the case of a purchaser other than an individual engaged in a trade or business, the deduction is allowable in computing taxable income.