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 Rev. Rul. 77-52

1977-1 C.B. 348

Section 4491

IRS Headnote

Aircraft use tax; foreign air commerce; stop in U.S. The domestic portion of an airline's flight between Washington, D.C. and a foreign country that consists of a stop in New York, at which point no passengers are allowed to alight on the trip to the foreign country and none are allowed to board on the return trip, is foreign air commerce for purposes of the aircraft use tax refund provided by section 6426(a) of the Code.

Full Text

Rev. Rul. 77-52

Advice has been requested, under the circumstances described below, whether the use of leased aircraft in the navigable airspace of the United States is subject to the tax imposed by section 4491(a) of the Internal Revenue Code of 1954, and, if so, whether the portion of the flight from Washington to New York is foreign air commerce for purposes of the aircraft use tax refund provided by section 6426(a) of the Code.

A foreign airline uses aircraft in the navigable airspace of the United States in connection with flights to and from a foreign country. The airline is authorized to engage in air commerce within the United States except that it may not take on at any point within the United States persons, property, or mail carried for compensation or hire destined for another point in the United States. The airline operates flights from Washington to New York to a point in a foreign country and back. Persons boarding in Washington may not alight in New York, but must continue to the foreign city. Additional passengers are picked up in New York. On return, no persons may board in New York to travel to Washington.

The aircraft used in these flights are leased by the airline from a United States person who is not in the business of transporting persons or property for compensation or hire by air. The leased aircraft are registered as required under the Federal Aviation Act of 1958.

Section 4491(a)(1) of the Code imposes a $25 annual tax on the use of any taxable civil aircraft in the navigable airspace of the United States. In addition, section 4491(a)(2) imposes an amount of tax dependent upon the weight and type of propulsion of the aircraft.

Section 4492(a) of the Code states that the term "taxable civil aircraft" means any engine driven aircraft: (1) registered or required to be registered under section 501(a) of the Federal Aviation Act of 1958 (49 U.S.C., section 1401(a)), or (2) that is not described in (1) but which is owned by or for a United States person.

Section 6426(a) of the Code provides that in the case of any aircraft used in the business of transporting persons or property for compensation or hire by air, if any of such transportation during any period is transportation in foreign air commerce, the Secretary shall pay to the person who paid the tax under section 4491 for such period the amount determined by multiplying that portion of the amount so paid for such period which is determined under section 4491(a)(2) with respect to such aircraft by a fraction (1) the numerator of which is the number of airport-to-airport miles such aircraft traveled in foreign air commerce during such period while engaged in such business, and (2) the denominator of which is the total number of airport-to-airport miles such aircraft traveled during such period.

Section 6426(b) of the Code states that the term "foreign air commerce" means any movement by air of the aircraft that does not begin and end in the United States; except that any segment of such movement in which the aircraft traveled between two ports or stations in the United States shall be treated as travel that is not foreign air commerce.

Section 154.4-1(b)(3) of the Temporary Regulations in connection with the Airport and Airway Revenue Act of 1970 defines foreign air commerce as use of an aircraft in the business of transporting persons or property for compensation or hire if the movement does not begin and end in the United States. Any segment of such movement in which the aircraft pursuant to its schedule traveled between two ports or stations in the United States shall not be treated as foreign air commerce. That section of the regulations further provides that for example, if an aircraft travels from London to New York to Chicago pursuant to its schedule, only the London to New York portion of the trip is in "foreign air commerce."

Rev. Rul. 73-336, 1973-2 C.B. 410, holds that a commercial flight beginning in Los Angeles and ending in Tokyo retains its status as transportation in foreign air commerce despite the fact that the aircraft makes a scheduled or unscheduled stop in Alaska for refueling or servicing the aircraft, provided (1) the aircraft operator is not certificated to operate commercial flights between such points in the United States, and (2) the flight is resumed in due course following such refueling or servicing stop.

Since the aircraft in question are required to be registered in accordance with the Federal Aviation Act of 1958, the use of such aircraft in the navigable airspace of the United States is subject to the tax imposed by section 4491(a) of the Code.

However, in the instant case the airline is not authorized to carry passengers traveling only between Washington and New York. Therefore, all passengers boarding in Washington are bound for a foreign destination. Merely because the aircraft lands in New York to pick up additional passengers does not change the nature of the actual commerce involved, which is the transportation of persons and property from a point within the United States to a point outside the United States. Accordingly, under the circumstances described herein the entire flight from Washington to New York to the foreign destination is foreign air commerce for purposes of determining the refund provided by section 6426(a) of the Code.

The person who pays the tax imposed by section 4491(a)(2) of the Code, whether the owner or the lessee, is entitled to claim the refund of such tax, as determined in accordance with section 6426(a) of the Code.