Rev. Rul. 60-304

Advice has been requested whether the exemption from the tax on the transportation of persons with respect to transportation furnished to a state or local government, provided by section 4292 of the Internal Revenue Code of 1954, applies to payments made for transportation in the situations described below.

Situation (1). A school, operated by a state, invites a prospective employee to visit the school for an employment interview. The school will subsequently reimburse the prospective employee for the actual travel expense incurred by him.

Situation (2). A school, also operated by a state, invites a member of the faculty of another institution to the school for the purpose of attending a technical conference which is of benefit to the school. The school will subsequently reimburse the visitor for the actual travel expense incurred by him.

Situation (3). A private employer `lends' some of his employees to a state-operated school for the purpose of conducting technical research which is of direct benefit to the school. The employees are required to travel during the course of conducting this technical research and the school will subsequently reimburse such employees for the actual travel expense incurred by them. However, the employees will not be paid by the school but will continue to receive their regular salaries from their private employer.

Section 4261 of the Code imposes a tax upon amounts paid within the United States for taxable transportation (as defined in section 4262) of any person by rail, motor vehicle, water, or air.

Section 4292 of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, no tax shall apply to payments received for transportation services or facilities furnished to the Government of any State, Territory of the United States, or any political subdivision of the foregoing, or the District of Columbia. Section 42.4292-1 of the Facilities and Services Excise Tax Regulations provides, in part, that amounts paid for transportation or facilities by an officer to employee of a State, Territory, etc., who is traveling on a mileage or other allowance basis are exempt from tax where reimbursement is made to such officer or employee.

Revenue Ruling 56-482, C.B. 1956-2, 885, holds that where a state operated school pays to a person engaged to speak before the student body a specified sum for his services and, in addition, reimburses him for the actual travel expense incurred by him, the payment made by the speaker for such transportation constitutes payment for transportation furnished to a state within the meaning of section 4292 of the Code and, accordingly, is exempt from tax on the transportation of persons.

Similarly, where an individual has been authorized by an agency or instrumentality of a state to travel on its behalf or for its benefit and will subsequently receive specific reimbursement from such agency or instrumentality for his travel expenses, the payment made by such individual for his transportation may properly be regarded as a payment for transportation furnished to a state within the meaning of section 4292 of the Code, even though the individual is not an officer or employee of the agency or instrumentality and even though the agency or instrumentality does not make the original payment to the carrier for the transportation.

Accordingly, it is held that the payments for transportation made by the individuals in situations (1), (2), and (3), described above, constitute payments for transportation furnished to a state within the meaning of section 4292 of the Code and, therefore, are exempt from the tax on the transportation of persons imposed by section 4261. The right to exemption in such cases must be established by Form 731, Exemption Certificate, executed by an officer of the school. The certificate should designate the limits of the travel and should be forwarded to the traveler for presentation to the agent of the carrier at the time he makes payment for the transportation. The school should also furnish the traveler a letter or other written evidence which will disclose that he is the person on whose behalf the certificate is issued.