Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-42

1969-1 C.B. 266

IRS Headnote

A transportation company, wholly owned by a railroad, operating a substantial bus service between various terminals for railroad passengers in addition to trucking freight consigned to the railroad for shipment is an "employer" under section 3231 of the Railroad Retirement Tax Act; C.T. 12 superseded.

Full Text

Rev. Rul. 69-42 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in C.T. 12, C.B. 1938-2, 345.

The question presented is whether a transportation company is an "employer" within the meaning of section 3231 of the Railroad Retirement Tax Act (chapter 22, subtitle C, Internal Revenue Code of 1954).

The transportation company is owned by a railroad company. Employees of the transportation company were formerly carried on the payroll of the railroad company but at present are carried on a separate payroll. The transportation company receives and makes delivery of substantially all freight consigned to the railroad to be shipped in less than carload lots, thus making it unnecessary for the trains of the railroad company to stop at small stations to deliver the freight. Waybills received from other carriers are exchanged between the railroad company and the transportation company and are rewritten on waybills of the latter company, which retains the tariff charges. Usual tariff charges are made by the transportation company against the railroad company for transportation of property for the railroad. A part of the service of the transportation company consists of transporting passengers of the railroad company between various railroad terminals. Tickets are interchanged between the railroad and the transportation company. Since the transportation company is owned by the railroad company, no definite contracts have been made between them. The transportation company owns ten buses and two freight trucks and the revenue mileage for the passenger buses has exceeded the revenue mileage for the freight express trucks.

Section 3231 of the Railroad Retirement Tax Act provides, in part, as follows:

"(a) Employer.--For purposes of this chapter, the term 'employer' means any carrier (as defined in subsection (g)), and any company which is directly or indirectly owned or controlled by one or more such carriers or under common control therewith, and which operates any equipment or facility or performs any service (except trucking service, casual service, and the casual operation of equipment or facilities) in connection with the transportation of passengers or property by railroad, * * *."

Since the transportation company is owned by the railroad company, a "carrier" within the meaning of section 3231(g) of the Act, it remains to be determined whether the transportation company is operating any equipment or facility or performing any service (other than "trucking service, casual service, and the casual operation of equipment or facilities") in connection with the transportation of passengers or property by railroad.

The use of the words "any service" and "any equipment or facility" indicates that an owned or controlled company may be an "employer" even though only a portion of its activities is in connection with the transportation of passengers or property by railroad. Thus, in the instant case, the fact that the transportation company may perform some service or operate some equipment or facility independent of railroad transportation does not preclude it from being classified as an "employer." Furthermore, it may be an "employer" even though a portion of its service consists of "trucking service" provided some service (other than "casual" service) is performed in connection with the transportation of passengers or property by railroad. The report of the hearings of the House Committee on Ways and Means (Seventy-fifth Congress, first session) on H.R. 6448, a bill that was substantially the same as H.R. 7589, Carriers Taxing Act of 1937, throws some light on the types of companies intended to be embraced by this provision. In those hearings the question was asked whether bus lines controlled or owned by the railroads would come under the general provisions of the bill. It was stated that they would not if they are not performing service in the transportation of passengers and property of the railroads; and that they must be an integral part of railroad operation.

Referring to certain changes made in section 1(a) of the Carriers Taxing Act of 1937 (the predecessor of the Railroad Retirement Tax Act), it was stated on page 5 of the report of the House Committee on Ways and Means on H.R. 7589 (Report No. 1071, Seventy-fifth Congress, first session):

"By these changes there are brought within the scope of the Act substantially all those organizations which are intimately related to the transportation of passengers or property by railroad in the United States." [Italics supplied.]

Thus, it would appear necessary that the transportation company transport passengers or property of or for a "carrier," and as an integral part of railroad transportation, in order to be classified as performing services "in connection with" railroad transportation. It is apparent from the facts presented that the transportation company is operated as an integral part of the transportation system of the railroad company. Since the transportation company is owned by the railroad company, which is a "carrier" within the meaning of section 3231(g) of the Railroad Retirement Tax Act, and not only operates equipment and facilities but performs services other than "trucking service" in connection with the transportation of passengers and property by railroad, it is held that the transportation company is an "employer" within the meaning of section 3231(a) of that Act.

C.T. 12 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.