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Rev. Rul. 76-550 1976-2 C.B. 331

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Revenue Ruling 76-550

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Headnote

Exemptions; municipal associations. Municipal associations composed of towns and cities of their respective states and organized exclusively for public purposes come within the scope of the exemption from retailers, manufacturers, and communications taxes but are subject to the tax on air transportation; Rev. Rul. 58-156 superseded.

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Purpose

The purpose of this Revenue Ruling is to update and restate under current statutes the conclusion set forth in Rev. Rul. 58-156, 1958-1 C.B. 389. Rev. Rul. 58-156 is concerned with whether certain State associations of municipalities come within the scope of the Federal excise tax exemptions provided by sections 4055, 4224 (now 4221(a)(4)), and 4292 of the Internal Revenue Code of 1954.

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Facts

Many State associations of municipalities are voluntary nonprofit organizations organized by city officials for exclusively public purposes to identify, promote, and serve the needs and best interests of the towns and cities of their respective States. They promote and sponsor research and training for municipal officials and employees. They provide information and materials to increase the efficiency of municipal governments, and provide a voice and representation before State legislatures and the United States Congress. The only voting members are the towns and cities, and each has one vote through the official representing that town or city. There may be other classes of membership established by the board of directors such as (1) selected honorary membership for distinguished persons and (2) associate membership for those interested in the furtherance of the association’s objectives. An insignificant amount of the association’s operating funds come from associate membership annual dues. The remainder of the operating funds come from annual dues paid by the member towns and cities, which dues are fixed within maximum and minimum amounts, based upon the populations of the towns and cities.

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Law and Analysis

Section 4055 of the Code provides that the retailers excise taxes will not apply to the sale of any article for the exclusive use of any State, Territory of the United States, or any political subdivision of any of the foregoing, or the District of Columbia, or with respect to the use by any of the foregoing of any liquid as a fuel. Section 4221(a)(4) of the Code provides that the manufacturers excise taxes will not apply to the sale by the manufacturer of an article to a State or local government for the exclusive use of a State or local government. Section 4292 of the Code provides that no tax shall be imposed under section 4251 upon any payment received for communications 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 205(a)(2) of the Airport and Airway Revenue Act of 1970, Public Law 91-258, 1970-1 C.B. 361, 363, removed the State and local government exemption relating to the air transportation of persons tax, effective July 1, 1970.

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Holding

Based on the facts set forth above, it is concluded that these State associations come within the scope of the exemptions provided by (1) section 4055 of the Code, relating to the retailers excise taxes, (2) section 4221(a)(4), relating to the manufacturers excise taxes, and (3) section 4292, relating to the taxes on communications services or facilities. Thus, where taxable articles are sold to the associations for their exclusive use or where communications services and facilities are furnished to them, the excise tax exemptions will apply. Effective February 1, 1977, under section 1904 of the Tax Reform Act of 1976, the exemptions provided by sections 4055 and 4292 of the Code are under new sections 4041(g)(2) and 4253(i), respectively. The Federal excise tax exemptions provided for States and political subdivisions thereof no longer apply to the taxes on amounts paid for transportation. Therefore, the associations are subject to the taxes under sections 4261 and 4271 of the Code on amounts paid for transportation of persons or property.

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Effect on Other Documents

Rev. Rul. 58-156 is superseded because the position set forth therein is restated under current law in this Revenue Ruling.