A company that provided helicopter sightseeing tours (prior to the exemption for sightseeing tours added to Code Sec. 4281 starting in October 2005) was subject to the air transportation excise tax imposed by Code Sec. 4261 because it operated on an established line. The noncharter tours satisfied the three elements of operating on an established line under Reg. §49.4263-5(c): (1) by “operat[ing] with some degree of regularity,” (2) the regularity of operation was “between definite points,” and (3) the flight operator maintained control over “the direction, route, time, number of passengers carried, etc.” Therefore, the Code Sec. 4281 exemption for small aircraft operated on a nonestablished line did not apply.
As to the first element, the company’s tours operated with a high degree of regularity in a discernible pattern that the public could rely on for transportation. The record showed that the same tours were flown at approximately the same time every day. An absolutely fixed schedule was not required to establish regularity.
As to the second element, the company operated between definite points. Although a substantial number of the flights at issue were circular, departing and returning to only one location, an established line does not require operation between two definite points. The court said that circular transportation falls within the tax, citing Reg. §49.4261-1(c).
As to the element of control, by designing the pre-packaged tours, including departure and landing locations, the company controlled the direction and routes traveled. Also, by actively shuffling its passengers into its preferred scheduling model, which operated to fit as many customers into each helicopter as possible, it exercised control over the timing of the flights.
In concluding that the flights at issue operated on an established line, the court followed Schuman Aviation Company Ltd., DC Hawaii, 2011-2 USTC ¶70,306, Lake Mead Air, Inc., DC Nev., 99-1 USTC ¶70,119, and Temsco Helicopters, Inc., CA-9, 2010-2 USTC ¶70,300. Further, the court questioned the persuasiveness of NorthStar Trekking LLC, DC Alaska, 2009-2 USTC ¶70,291, in light of Temsco.
Finally, the court held that the company had a legal obligation under Code Sec. 4291 to pay the air transportation excise tax to the government. The company argued that it had no such obligation because the vast majority of its customers paid third parties for the flights in question. But Code Sec. 4263(c) clearly imposes a payment obligation, amounting to secondary liability, on air carriers. Specifically, it requires the carrier providing the initial segment of transportation to pay the tax if it is not otherwise collected. Moreover, nothing in the statute required the government to first attempt to collect the tax from the tour purchaser. The court concluded that Congress sought to place final liability for the tax on the transportation provider.
Sundance Helicopters, Inc., FedCl, 2012-1 USTC ¶70,310
Other References:
Code Sec. 4263
CCH Reference – ETR ¶19,665.01
Code Sec. 4281
CCH Reference – ETR ¶20,875.01
CCH Reference – ETR ¶20,875.30
Code Sec. 4291
CCH Reference – ETR ¶21,515.01
CCH Reference – ETR ¶21,515.82
Tax Research Consultant
CCH Reference – TRC EXCISE: 9,102.50
CCH Reference – TRC EXCISE: 9,108.05
