IRS Revenue Ruling
2002-34

 
Code Secs. 4261, 4281

<<FULL TEXT>>

26 CFR 49.4261-1: Imposition of tax; in general.
(Also sections 4281.)

Segment Tax. This ruling provides guidance on how to calculate the tax
on domestic segments under section 4261(b) of the Code if an aircraft is
chartered and one or more persons are transported on that aircraft.


REV. RUL. 2002-34

ISSUE

How is the tax on domestic segments under section 4261(b) of the
Internal Revenue Code calculated if an aircraft is chartered and one or
more persons are transported on that aircraft?


FACTS

X operates an air charter service that provides taxable air
transportation. Each of X's aircraft has a certificated takeoff weight in
excess of 6,000 pounds. The amount X charges for the charter of an
aircraft is not affected by the number of passengers transported on the
aircraft. Passengers transported on the aircraft do not pay for the
transportation.


LAW AND ANALYSIS

Section 4261(a) imposes a tax on the amount paid for taxable
transportation (as defined in section 4262) of any person by air (the
percentage tax) equal to 7.5 percent of the amount paid.

Section 4262(a)(1) provides that the term "taxable transportation"
includes transportation by air which begins in the United States and ends
in the United States.

Section 4261(b)(1), enacted by section 1031(c)(1) of the Taxpayer
Relief Act of 1997, 1997-4 (Vol. 1) C.B. 1, 143, imposes a tax on the
amount paid for each domestic segment of taxable transportation (the
segment tax) equal to a fixed amount determined in accordance with the
table contained in that section. For segments beginning in 2002, that
amount is $3.00 per segment. The term "domestic segment" is defined in
section 4261(b)(2) as any segment consisting of one takeoff and one
landing that is taxable transportation described in section 4262(a)(1).

Section 4261(c) imposes a tax on any amount paid for any transportation
of any person by air if the transportation begins or ends in the United
States (the international facilities tax). Generally, the amount of the
tax was set at $12.00 for amounts paid in 1997. Section 4261(e)(4)
provides that the amount of the tax imposed by section 4261(c) is to be
adjusted for inflation; generally, the amount of the tax for amounts paid
in 2002 is $13.20.

Section 4281 provides an exemption from the tax imposed by section 4261
for aircraft having a certificated takeoff weight of 6,000 pounds or less,
except when that aircraft is operated on an established line.

Rev. Rul. 72-309, 1972-1 C.B. 348, addresses the calculation of the
international facilities tax imposed by section 4261(c) in the context of
a single payment for a charter. The revenue ruling concludes that, if a
single amount is paid for a charter, the section 4261(c) international
facilities tax applies with respect to each passenger because implicit in
the charter fee is an amount paid for the transportation of each passenger
actually on the flight.

The section 4261(b) segment tax is similar to the section 4261(c)
international facilities tax inasmuch as it is not calculated as a
percentage of the amount paid, but is a fixed amount imposed on the amount
paid for the transportation. Rev. Rul. 72-309 establishes that implicit in
a charter payment is an amount paid for each passenger actually on the
flight. Thus, as in the case of the section 4261(c) international
facilities tax, the section 4261(b) segment tax is to be calculated on a
per-passenger basis. Accordingly, for each segment, X must calculate the
section 4261(b) segment tax by multiplying the amount of tax set forth in
section 4261(b)(1) by the number of passengers transported on the
chartered aircraft. (The segment tax so determined is not an amount paid
for taxable transportation for purposes of calculating the section 4261(a)
percentage tax.)


HOLDING

If an aircraft is chartered and one or more persons are transported on
that aircraft, for each segment the tax under section 4261(b) is
calculated by multiplying the amount of tax set forth in section
4261(b)(1) by the number of passengers transported on the aircraft.

DRAFTING INFORMATION

The principal author of this revenue ruling is Patrick S. Kirwan of the
Office of Associate Chief Counsel (Passthroughs and Special Industries).
For further information regarding this revenue ruling, contact Mr. Kirwan
at (202) 622-3130 (not a toll-free call).

<<END RULING>>

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