Rev. Rul. 80-31

ISSUE

Does the tax on transportation of persons by air apply to amounts paid for a service charge added to the price of a ticket for taxable transportation by an airline or an airline agency to cover certain administrative costs involving the purchase of a ticket for use by another person in a different city?

FACTS

The Internal Revenue Service has given further consideration to Rev. Rul. 77-392, 1977-2 C.B. 380, which holds that a service charge added by an airline agency to the price of a ticket for transportation for use by another person in a different city is a payment for taxable transportation and is subject to the tax on transportation of persons by air. The charge covers the administrative cost of processing the paper work and the reservations connected with the transportation.

LAW AND ANALYSIS

The applicable section of the Code and the Facilities and Services Excise Tax Regulations are 4261(a), which imposes a tax upon the amount paid for taxable transportation of any person by air; 49.4261-7(c), which provides that amounts paid as additional charges for changing the class of accommodations, destination, or route, extending the time limit of a ticket, as "extra fare," or for exclusive occupancy of a section, etc; are taxable; and 49.4261-7(f), which provides that the tax applies to prepaid orders, exchange orders or similar orders for transportation, and to additional amounts paid in procuring transportation in connection with the use of such orders.

Rev. Rul. 55-762, 1955-2 C.B. 660, holds that a time payment differential that is paid in excess of the established cash fare is not part of the amount paid for transportation because it is confined to or representative of the expense incurred by the carrier in selling tickets on the time payment plan, and is not taxable.

In light of the foregoing and upon further consideration of Rev. Rul. 77-392, it has been concluded that the tax imposed by section 4261 of the Code should not apply to a separate charge made by an air carrier or an airline agent for a service not reasonably necessary to the air transportation itself, provided the service is optional and the charge bears a reasonable relation to the cost of providing the service.

Thus, in Rev. Rul. 77-392 the service charge is for an extra service that is not reasonably necessary to the basic air transportation because the ticket could be purchased without the charge in the other city. Therefore, the amount paid for such a charge made by an airline or an airline agency is not a payment for transportation within the scope of section 49.4261-7 of the regulations.

HOLDING

The amount paid for the service charge made by an airline or an airline agency for the costs of issuing the ticket to another person in a different city is not subject to the tax imposed by section 4261(a) of the Code.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 77-392 is revoked.