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Revenue Ruling 78-153

Rev. Rul. 78-153 1978-1 C.B. 315

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Headnote

NATO unit. The Headquarters of the Supreme Allied Commander Atlantic (SACLANT), a unit of NATO, may use vehicles and purchase articles and services free of the taxes imposed by section 4251 and chapters 31, 32, 34, and 36 of the Code. However, the organization is not exempt from the user taxes on air transportation of persons and property imposed by sections 4261 and 4271, respectively. Rev. Rul. 71-235 superseded.

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ISSUE

Advice has been requested as to the applicability of the federal excise taxes imposed under Chapters 31, 32, 33, 34, and 36 of the Internal Revenue Code of 1954 to transactions involving the organization described below.

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FACTS

The Headquarters of the Supreme Allied Commander Atlantic (SACLANT) is an arm of the North Atlantic Treaty Organization (NATO) located at Norfolk, Virginia. Article XI of the Agreement Between the Parties to the North Atlantic Treaty Regarding the Status of Their Forces, provides that service vehicles of a military force (or civilian component) are exempt from any tax payable in respect of vehicles on the roads. Further, fuel, oil and lubricants, for use in service vehicles, aircraft, and vessels of a military force (or civilian component) are exempt from tax. This agreement (The North Atlantic Treaty) was signed in Washington on April 4, 1949. Article 8 of the Protocol on the Status of International Military Headquarters Set Up Pursuant to the North Atlantic Treaty, 5 UST 870, 881, provides that SACLANT has the rights granted to a military force and is relieved, so far as practicable, from duties and taxes affecting expenditures by it in the interest of common defense and for its official and exclusive benefit. However, the expression “duties and taxes” does not include charges for services rendered. The Protocol was signed in Paris on August 28, 1952. In implementing the Protocol, the Agreement and Exchange of Letters Between the United States of America and the Headquarters of the Supreme Allied Commander Atlantic, 5 UST 2519, 2523, provides that equipment, materials, and services are available to SACLANT at prices not to exceed the gross cost to the United States Government and excluding identifiable federal, state, and local government taxes and duties. The Agreement and Exchange of Letters signed in Washington on October 22, 1954, was retroactive to April 10, 1954.

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LAW AND ANALYSIS

Under Chapter 31 of the Code, a retailers excise tax is imposed on diesel fuel (section 4041(a)), special motor fuels (section 4041(b)), and fuel used in non-commercial aviation (section 4041(c)). Under Chapter 32 of the Code, a manufacturers excise tax is imposed on certain automotive vehicles and related articles (section 4061), tires, tubes, and tread rubber (section 4071), gasoline (section 4081), lubricating oil (section 4091), certain articles of sporting goods (section 4161), and firearms, shells, and cartridges (section 4181). Under Chapter 33 of the Code, a facilities and services tax is imposed on amounts paid for local and toll telephone service and teletypewriter service (section 4251), transportation of persons by air (section 4261) and transportation of property by air (section 4271). Under Chapter 34 of the Code a documentary stamp tax is imposed on policies issued by foreign insurers (section 4371). Under Chapter 36 of the Code a use tax is imposed on the use of certain vehicles on public highways (section 4481), and the use of certain civil aircraft during any year (section 4491). Section 4041(g) of the Code provides that no tax shall be imposed on any liquid sold for use, or used as supplies for vessels or aircraft as defined under section 4221(d)(3). Section 4221(a)(3) provides that no tax shall be imposed on the sale by the manufacturer of an article for use by the purchaser as supplies for vessels or aircraft. Section 4221(d)(3) provides, in part, that the term “supplies for vessels or aircraft” includes fuel supplies or legitimate equipment used on vessels of war of the United States or of any foreign nation. Vessels of war of the United States or of any foreign nation include aircraft that are a part of the armed forces thereof. Section 7852(d) of the Code states that no provisions of the Internal Revenue Code shall apply in any case where its application would be contrary to any treaty obligation of the United States in effect on the date of enactment of the Internal Revenue Code of 1954 (enacted August 16, 1954). The Agreement Between the Parties to the North Atlantic Treaty (including the Protocol and the Agreement and Exchange of Letters) is a treaty obligation of the United States that was in effect on the date of enactment of the Internal Revenue Code of 1954. Rev. Rul. 71-235, 1971-1 C.B. 369, holds that SACLANT may purchase automobiles free of the manufacturers excise tax imposed by Section 4061(a)(2) of the Code (prior to repeal of that section by the Revenue Act of 1971, Public Law 92-178, 1972-1 C.B. 443) where its expenditures are made in the interest of common defense and for its official and exclusive benefit. One class of identifiable excise taxes that would affect expenditures by SACLANT under the treaty consists of the retailers excise taxes under Chapter 31 of the Code (other than the tax on aviation fuel imposed by section 4041(c)), the manufacturers excise taxes under Chapter 32 (other than the tax on aircraft tires and tubes imposed by section 4071), the communications tax under section 4251 of Chapter 33, the taxes relating to certain foreign insurance policies under section 4371 of Chapter 34, and the taxes on the use of certain highway motor vehicles under section 4481 of Chapter 36. Therefore, SACLANT may use vehicles or purchase articles and services free of the taxes imposed under the foregoing provisions of the Code indicated, provided such vehicles, articles, and services are for use by that organization in the interest of common defense and for its official and exclusive benefit. The Airport and Airway Revenue Act of 1970 (Public Law 91-258, 1970-1 C.B. 361), effective July 1, 1970, established another classification of identifiable federal excise taxes that would affect expenditures by SACLANT. These are the airway user taxes imposed on sales of aviation fuel (section 4041(c) of the Code), sales of aircraft tires and tubes (section 4071), transportation by air (sections 4261 and 4271), and the use of civil aircraft (section 4491). Under Section 154.3-1(b)(2) of the Temporary Regulations in Connection with the Airport and Airway Revenue Act of 1970, the term “taxable civil aircraft” does not include military aircraft. These taxes are in the nature of user charges for services rendered and are not “taxes” as that word is used in international comity and treaties. See Rev. Rul. 72-10, 1972-1 C.B. 343 as amplified and modified by Rev. Rul. 78-155, page 362, this Bulletin. Since airway user taxes are charges for services rendered they are, on this basis, distinguishable from the other federal excise taxes imposed by the Internal Code of 1954. Rev. Rul. 78-155, holds the user taxes on air transportation and civil aircraft use are applicable to all users. However, that Revenue Ruling also holds that the user taxes on aviation fuel and aircraft tires and tubes are not applicable to users who come within the scope of specific statutory exemptions. Therefore, noncommercial aviation fuel and aircraft tires and tubes sold for use or used as supplies for vessels or aircraft are exempt from tax under sections 4041(g) and 4221(a)(3) of the Code respectively.

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HOLDING

Accordingly, under the 1970 Act, amounts paid by SACLANT for transportation of persons and property by air are taxable under sections 4261 and 4271 of the Code respectively. However, inasmuch as SACLANT is a military force the tax imposed under section 4491 on the use of civil aircraft is not applicable, and the exemption from the tax on aviation fuel under section 4041(g), and the exemption from the tax on aircraft tires and tubes under section 4221(a)(3) apply to sales of such articles to SACLANT for use or used as supplies or equipment for its military vessels or aircraft.

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EFFECT ON OTHER DOCUMENTS

Rev. Rul. 71-235 is amplified and as amplified is superseded, since the tax imposed on automobiles under section 4061(a)(2) of the Code has been repealed and the position reflecting SACLANT’s treaty rights with respect to the manufacturers excise taxes is restated in this Revenue Ruling under current law.