Rev. Rul. 58-60

The Internal Revenue Service has been asked to determine a reasonable basis for allocating total charges for sightseeing tours between taxable transportation and nontaxable services performed in connection with such transportation under the circumstances described below.

Sightseeing tours, as conducted by various companies throughout the nation, usually consist of transportation by rail, bus, or other vehicle along routes prescribed by the sightseeing company and include points of interest selected by the company. In many instances, the driver of the vehicle acts as a guide and imparts interesting information to the passengers during the course of the tour. In other instances, the company furnishes, in addition to the driver, a separate guide-lecturer who performs such service. Some tours are quite extensive and may include meals and hotel accommodations as well as admissions to historical sites and similar places. A total charge is usually made by the company for the entire tour and such charge includes all services and accommodations. The question arises as to what constitutes a reasonable basis for allocating the total charge between taxable transportation and nontaxable services for purposes of computing and collecting the tax on the transportation of persons. The examples set forth below are illustrative of the various types of tours and the extent of the services performed with each.

Example (1). The driver, in addition to his duties as such, acts as a guide-lecturer, and there are no meals, admissions, or other nontransportation services included in the tour. A total charge of four dollars (per person), excluding tax, is made for the tour.

Example (2). A separate guide-lecturer is furnished, but there are no other services included. A total charge of six dollars, excluding tax, is made.

Example (3). A separate guide-lecturer is furnished and the tour also includes a one hour stop at a historical site for which the sightseeing company pays the historical society an admission charge of 50 cents (per person). A total charge of seven dollars, excluding tax, is made for the tour.

Example (4). A tour includes a separate guide, meals, hotel room for one night, and admissions to various places of interest. The sightseeing company incurs expenditures (per person) of six dollars for meals, four dollars for hotel room, and two dollars for admissions. A total charge of $24, excluding tax, is made by the sightseeing company for the tour.

Many sightseeing companies have filed tariffs with the Interstate Commerce Commission which set forth their own allocations of total charges between taxable transportation and separate guide-lecturer service. These allocations vary considerably and some show a much higher percentage applied to nontaxable guide-lecturer services than others.

Section 4261 of the Internal Revenue Code of 1954 imposes a tax on the amount paid within the United States for taxable transportation of any person by rail, motor vehicle, water, or air. Section 4262 of the Code defines `taxable transportation' to include `transportation which begins in the United States or in the 225-mile zone and ends in the United States or in the 225-mile zone.'

Section 42.4261-2(c) of the Facilities and Services Excise Tax Regulations provides that where a payment covers charges for nontransportation services as well as for transportation of a person, such as charges for meals, hotel accommodations, etc., the charges for the nontransportation services may be excluded in computing the tax payable with respect to such payment, provided such charges are separable and are shown in the exact amounts thereof in the records pertaining to the transportation charge. If the charges for nontransportation services are not separable from the charge for transportation of the person, the tax must be computed upon the full amount of the payment. Section 42.4261-8(f)(4) of the regulations provides that charges for admissions, guides, meals, hotel accommodations, and other nontransportation services are exempt from the tax where such charges are separable from the payment for the transportation of a person and are shown in the exact amount thereof on the records pertaining to the transportation payment.

It is held that where the driver of the vehicle also acts as a guide-lecturer no amount may be excluded from the total charge as a payment for nontransportation services of a guide-lecturer.

However, where a sightseeing company furnishes, in addition to the driver of the vehicle, a separate guide-lecturer for a sightseeing tour, the services performed by the guide-lecturer constitute nontransportation services, and the charges for such service may be excluded from the total charge for the tour in determining the basis for computing the transportation tax. It is further held that in such cases where a total charge is made for a tour which includes a separate guide-lecturer, an exclusion of 25 percent will be applied on a nationwide basis to represent the allocation for the separate guide. Where, in addition to the separate guide-lecturer, the tour also includes costs for admissions, hotels, meals, and other nontaxable services, these costs will be deducted from the total charge before applying the exclusion of 25 percent for the guide.

Thus, in Example (1) (above), the tax is computed on the entire charge of four dollars, as follows:

      Total charge............................................   $4.00