Rev. Rul. 85-36

1985-1 C.B. 336, 1985-13 I.R.B. 9.

UNINTERRUPTED INTERNATIONAL AIR TRANSPORTATION; ABSENCE OF AN INTERLINE

AGREEMENT

Published: April 1, 1985

Section 4261.-Imposition of Tax, 26 CFR 49.4261-1: Imposition of tax; in general

(Also Section 4263)

  Uninterrupted international air transportation; absence of an interline agreement. If a ticket is purchased for domestic air transportation and such domestic air travel is part of uninterrupted international air transportation as defined in section 4262(c)(3) of the Code, the fact that the tickets are purchased separately from two different air carriers that do not have an interline agreement does not make the domestic portion of the trip subject to tax, provided all other requirements have been met for exclusion.

ISSUE

  Does the tax imposed by section 4261(a) of the Internal Revenue Code on amounts paid for the taxable transportation of persons by air apply in the situation described below?

FACTS

  A purchased from M, an international air carrier, a round-trip ticket for air transportation between X, a city in the United States, and Y, a city located in Europe. Soon thereafter, A purchased from N, a domestic air carrier, a nonstop round-trip ticket for air transportation between Z, a city in the United States, and X. The Air transportation between Z and X was purchased in order that A could connect with the international air carrier for the trip from X to Y and back. A's scheduled stopover in X was to be 12 hours or less both going to, and returning from, Y. At the time of purchase of the domestic ticket, A showed N the international air ticket purchased from M. Although A established that the trip from Z to X and back served merely to connect with the international air transportation, N included in the amount charged A for the domestic round trip an amount representing the tax imposed by section 4261(a) of the Code on the taxable transportation of persons by air because N did not have an interline agreement with M.

  Interline agreements are arrangements (multilateral or bilateral) between airlines that provide for the checking of baggage through to the final destination when a passenger must change carriers enroute and that also enable passengers to use a ticket issued by one airline company as payment on flights of another participating airline.

LAW AND ANALYSIS

  Section 4261(a) of the Code imposes on any person an eight percent tax on the amount paid for taxable transportation of persons by air.

  Section 4262(a) of the Code defines 'taxable transportation', in part, as meaning (1) transportation by air which begins and ends in the United States, and (2) in the case of transportation by air that does not begin and end in the United States, that portion of such transportation which is directly or indirectly from one part or station in the United States to another port or station in the United States, but only if such portion is not a part of uninterrupted international air transportation.

  Under section 4263(e) of the Code, a round trip is considered to consist of transportation from the point of departure to the destination and of separate transportation thereafter.

  Section 4262(c)(3) of the Code defines 'uninterrupted international air transportation' as any transportation by air which does not begin and end in the United States and in which the scheduled interval between (i) the beginning or end of the portion of such transportation which is directly or indirectly from one port or station in the United States to another portion or station in the United States and (ii) the end or beginning of the other portion of such transportation is not more than 12 hours.

  Section 4263(d) of the Code provides that the tax imposed by section 4261 shall apply to any amount paid within the United States for transportation of any person by air unless the taxpayer establishes, pursuant to regulations prescribed by the Secretary of the Treasury, at the time of payment for the transportation, that the transportation is not transportation subject to the tax imposed by section 4261.

  Section 49.4261-4(c) of the Facilities and Services Excise Tax Regulations provides that where a separate domestic ticket or order is issued for taxable transportation as defined in section 4262(a)(1) of the Code, but the domestic ticket or order is to be used in conjunction with an international ticket or order which changes the tax consequences, unless the domestic ticket or order and the international ticket or order are purchased from a single agency or carrier at the same time, the person making payment for the domestic ticket or order to the agency or carrier receiving such payment. (sic) That section of the regulations further requires the agency or carrier receiving the payment for the domestic ticket or order to inscribe the tickets or orders for the entire journey in a prescribed manner so as to show that the domestic ticket or order has been issued in conjunction with the international ticket or order and that the domestic ticket or order has been purchased tax free.

  The fact that M does not have an interline agreement with N does not affect the tax consequences of A's purchase of the domestic air transportation. Interline agreements are merely contractual arrangements between carriers that provide convenient baggage and ticket transfer services to their passengers. Nothing in the Code or regulations requires that, because of the absence of an interline agreement, amounts paid by A for the domestic round trip air transportation between Z and X be subject to the tax imposed by section 4261(a) of the Code if, as in the instant case, all requirements have been met for exclusion.

HOLDING

  A is not liable for payment of the tax imposed on the transportation of persons by air under section 4261(a) of the Code on amounts paid for A's domestic air transportation from Z to X and back. If the tax has been paid by A, a credit or refund would be available under sections 6401(c) and 6402(a).

Rev. Rul. 85-36, 1985-1 C.B. 336, 1985-13 I.R.B. 9.