Internal Revenue Service
Revenue Ruling
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smRev. Rul. 75-27
1975-1 C.B. 355
IRS Headnote
Transportation of property by air; continental U.S. to Alaska. The tax on transportation of property by air does not apply to amounts charged for the non-U.S. portion of a flight from the continental U.S. to Alaska on either a nonstop flight or a flight with a scheduled stopover in Canada beyond the 225-mile zone. However, if the flight includes a scheduled stopover in Canada within the 225-mile zone, only the portion of the flight from the stopover point to the Alaskan border is excluded from application of the tax.
Full Text
Rev. Rul. 75-27
Advice has been requested regarding the applicability of the tax on transportation of property by air, imposed by section 4271 of the Internal Revenue Code of 1954, to amounts paid to a carrier for transportation described in the situations below.
Situation 1. A's property is transported by air from a point in the continental United States nonstop to a point in Alaska.
Situation 2. B's property is transported by air from a point in the continental United States to a point in Alaska via a scheduled stopover in Canada at a point beyond 225 miles from the border of the continental United States.
Situation 3. C's property is transported from a point in the continental United States to a point in Alaska via a scheduled stopover in Canada at a point within 225 miles of the border of the continental United States.
In both situations 2 and 3 the stopover is made either for the purpose of refueling the plane or for the purpose of picking up or delivering property other than that of B or C.
Section 4271(a) of the Code imposes a tax upon the amount paid within or without the United States for the taxable transportation (as defined in section 4272) of property by air. The tax imposed by section 4271 applies only to amounts paid to a person engaged in the business of transporting property by air for hire.
Section 4272(a) of the Code provides that the term "taxable transportation" means transportation by air that begins and ends in the United States. Section 4272(b)(1) provides the term "taxable transportation" does not include that portion of any transportation which meets the requirements of paragraphs (1), (2), (3), and (4) of section 4262(b).
Section 4262(b) of the Code excludes from the definition of "taxable transportation" that portion of any transportation which meets all four of the following requirements:
(1) Such portion is outside the United States;
(2) neither such portion nor any segment thereof is directly or indirectly--
(A) between (i) a point where the route of the transportation leaves or enters the continental United States, or (ii) a port or station in the 225-mile zone; and
(B) A port or station in the 225-mile zone;
(3) such portion--
(A) begins at either (i) the point where the route of the transportation leaves the United States, or (ii) a port or station in the 225-mile zone, and
(B) ends at either (i) the point where the route of the transportation enters the United States, or (ii) a port or station in the 225-mile zone; and
(4) a direct line from the point (or the port or station) specified in paragraph (3)(A), to the point (or the port or station) specified in paragraph (3)(B), passes through or over a point which is not within 225 miles of the United States.
Section 4262(c)(1) of the Code defines the term "continental United States" as meaning the District of Columbia and the States other than Alaska and Hawaii.
Section 4262(c)(2) of the Code defines the term "225-mile zone" as meaning that portion of Canada and Mexico which is not more than 225 miles from the nearest point in the continental United States.
Section 49.4262(b)-1(a) of the Facilities and Services Excise Tax Regulations provides that, for purposes of section 4262 of the Code, the route of the transportation shall be deemed to leave or enter the United States when it passes over (i) the international boundary line between any part of the United States and a contiguous foreign country, or (ii) a point three nautical miles (3.45 statute miles) from low tide on the coast line.
Section 49.4262(b)-1(b) of the regulations provides that, under the provisions of section 4262(b) of the Code, transportation between the continental United States or the 225-mile zone and Alaska or Hawaii will be partially exempt from the tax. The portion of such transportation which (i) is outside the United States, (ii) is not transportation between ports or stations within the continental United States or the 225-mile zone, and (iii) is not transportation between ports or stations within Alaska or Hawaii, meets all the requirements set forth in section 4262(b) and is excluded from taxable transportation.
While the tax imposed by section 4271 of the Code applies to transportation of property that begins and ends in the United States (including Alaska and Hawaii), the Congress, when enacting the Airport and Airway Revenue Act of 1970, Pub. L. 91-258, 1970-1 C.B. 361, intended that not all of the transportation between the continental United States and Alaska or Hawaii be subject to the tax. In Senate Report No. 91-706, 1970-1 C.B. 386, at 395, the Committee stated: "The committee amendments, however, made two modifications in the application of the tax on air freight: (1) air freight to or from Alaska and Hawaii is to be exempt from the tax for that portion of the flight not over U.S. territory or the portion of the flight from the last port or station in the '225-mile zone' (as under present law for the tax on passenger transportation (sec. 4262(b))) * * *."
Thus, in determining, under the provisions of section 4262(b) of the Code, the portion of the transportation between the continental United States and Alaska to be excluded from the term "taxable transportation," a stopover at a port or station within the 225-mile zone is to be taken into account. The fact that the stopover was made for a reason unrelated to handling of the particular taxpayer's property is irrelevant; a stopover defines a portion of a flight for purposes of section 4262(b), regardless of the purpose of the stopover.
Since in all three situations described above, the transportation of property begins and ends in the United States, the tax imposed by section 4271 of the Code is applicable to the amount paid for such transportation. The pertinent question, for purposes of computing the tax, is what portion of the transportation is excludible under the provisions of section 4272(b)(1) as determined under the requirements set forth in section 4262(b).
In situation 1, the portion of the nonstop transportation of A's property between the point where the route of transportation leaves the continental United States and the point where it enters Alaska meets the requirements of section 4262(b) of the Code and is excludible from "taxable transportation" for purposes of computing the tax imposed by section 4271.
In situation 2, since the stopover made by the carrier is at a point in Canada beyond the 225-mile zone and not at a port or station within the 225-mile zone, such stopover is not taken into account in computing the tax and the result is the same as in situation 1.
In situation 3, the portion of the flight that is between the point at which the route of transportation leaves the United States and the point at which the stopover is made within the 225-mile zone in Canada is not excluded from taxable transportation for purposes of the tax imposed by section 4271 of the Code, inasmuch as such portion does not meet the requirements of section 4262(b)(2). The portion of the flight from the port or station within the 225-mile zone to the Alaskan border is excluded from taxable transportation since that portion of the flight meets the requirements of section 4262(b).