Rev. Rul. 80-34

1980-1 C.B. 251, 1980-6 I.R.B. 9.

                       Internal Revenue Service
                                 Revenue Ruling

                   COMMUNICATIONS; EXEMPTION; TRAVEL AGENCIES

                          Published: February 11, 1980

(Also Section 4251, 4252; 26 CFR 49.4251-1.)

  Communications; exemption; travel agencies. The communications tax ememption for common carriers does not apply to amounts paid for wide area telephone service (WATS) by travel agencies that sell tours to ghe general public but charter the necessary aircraft and buses from airlines and bus companies; Rev. Rul. 75-296 distinguished.

ISSUE

  Does the communication tax exemption for common carriers apply to amounts paid for wide area telephone service (WATS) furnished to certain travel agencies?

FACTS

  X, a travel agency, is primarily engaged in selling air tours to the general public through its tour division as a principal, and charters necessary aircraft from domestic airlines. It collects, reports, and pays air transportation taxes to the government.  Further, as agent for hotels, motels, and airlines, X sells tickets and accommodations.

  Y travel agency operates similar to X except that Y sells bus tours through its tour division.

  Both X and Y subscribe to the wide area telephone service (WATS) that is used exclusively in their charter tour divisions.

LAW AND ANALYSIS

  Section 4251 of the Internal Revenue Code imposes a tax on amounts paid for local and toll telephone service.  Section 4252(b)(2) defines WATS, a specific type of toll telephone service. Section 4253(f) provides common carriers with an exemption from the WATS tax for toll telephone service used in the conduct of their business as common carriers.

  Rev. Rul. 76-405, 1976-2 C.B. 352, concludes that for the purpose of section 4253(f) of the Code a common carrier is one holding itself out to the public as engaged in the business of transportation of persons or property from place to place for compensation, offering its services to the public generally.  The distinctive characteristic of a common carrier is that it undertakes to carry for all people indifferently.

  X and Y hold themselves out to the public as travel agencies. In the operation of their businesses in connection with their chartered tours that include air transportation, hotel reservations, meals, tour guide, and tips, they charter aircraft or buses from commercial airlines or bus companies.  The airplanes or buses leased from the airlines or bus companies are operated and controlled by the lessor; therefore, the airlines or bus companies are the carriers and, hence the ones furnishing the transportation. Accordingly, X and Y are not common carriers for purposes of the exemption provided by section 4253(f) of the Code.

  Rev. Rul. 75-296, 1975-2 C.B. 440, is distinguishable from the present situation.  Rev. Rul. 75-296 considers whether an independent travel agency that arranges and sells tours that include chartered air transportation is required under section 4291 of the Code to collect the air transportation tax imposed by section 4261 of the Code.  Section 4291 provides that every person receiving any payment for facilities or services on which tax is imposed must collect the tax from the person making the payment.  Rev. Rul. 75-296 concludes that where the travel agency is selling the taxable air transportation as a principal rather than as an agent, it is required to collect the tax.  This does not mean that the travel agency was acting as an air carrier.  Rather, it was purchasing transportation from an air carrier under charter and reselling the transportation to others.

HOLDING

  X and Y do not qualify for the exemption provided by section 4253(f) of the Code with respect to the tax imposed by section 4251 on amounts paid for WATS, as described in section 4252(b).

EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 75-296 is distinguished.

Rev. Rul. 80-34, 1980-1 C.B. 251, 1980-6 I.R.B. 9.