Rev. Rul. 58-6, 1958-1 CB 440
REV-RUL, SECTION 4271.--IMPOSITION OF TAX, Rev. Rul. 58-6, 1958-1 CB 440, (Jan. 01, 1958)
SECTION 4271.--IMPOSITION OF TAX
A logging contractor, in performing a complete logging operation, including
transportation of the logs from the timber tract to a millpond, sawmill, or
other designated place, is not a "person engaged in the business of
transporting property for hire" within the meaning of section 4272(a)
of the Internal Revenue Code of 1954. Therefore, payments for a
complete logging operation are not subject to the tax on transportation of
property. However, a person who as an independent contractor, contracts only
for loading the logs and hauling them to a designated place is a
"person engaged in the business of transporting property for
hire," and payments for such loading and hauling are subject to the tax
on transportation of property.
Advice has been requested concerning the applicability of the tax on transportation of property imposed by section 4271(a) of the Internal Revenue Code of 1954 to payments for the transportation of logs in connection with a logging operation.
A lumber company purchases tracts of standing timber from which it has all of the merchantable timber cut and delivered to its sawmill. The lumber company contracts with two logging contractors, each for performance of the complete logging operations as separate tracts. These operations include felling, topping, limbing, yarding, and skidding the logs to designated log dumps along the edge of the tracts, loading the logs from the log dumps onto trucks and transporting them to a millpond. In order to perform these operations, the logging contractors, at their own expense, must build access roads into the timber tracts, and also must build certain other roads over which the logs are hauled to the millpond. The lumber company owns the road building equipment but the logging contractors are responsible for its repair and maintenance. The logging contractors are paid a set price per thousand feet of logs delivered to the millpond.
A, one of the logging contractors, performs all of the logging operations from the cutting of the timber to the delivery of the logs at the millpond. B, the other logging contractor, performs only the logging operations up to and including delivery of the logs at the log dumps along the edge of the tract. B contracts with C, as an independent contractor, to load the logs from the log dump onto trucks owned and operated by C and to transport them to the millpond. C is required to build the necessary roads over which he hauls the logs and is responsible for the repair and maintenance of the lumber company's equipment used for this purpose. B pays C a set price per thousand feet of logs hauled.
Section 4271(a) of the Code imposes a tax upon the amount paid for the transportation of property by rail, motor vehicle, water, or air from one point in the United States to another. Section 4272(a) of the Code provides that the tax shall apply only to amounts paid to a person engaged in the business of transporting property for hire.
Section 143.1(b) of Regulations 113, made applicable to the 1954 Code by Treasury Decision 6091, C. B. 1954-2, 47, defines the term "person engaged in the business of transporting property for hire" to include a common carrier, contract carrier, local moving or drayage concern, freight forwarder, express company, or other person transporting property for hire wholly or in part by rail, motor vehicle, water or air. That section defines the term "transportation" to mean the movement of property by a person engaged in the business of transporting property for hire.
Although transportation is an important part of a logging contractor's work in the performance of a complete logging operation, it is only one of a large number of important operations, and it is considered as being incidental to the performance of the complete logging operation. It is held that, in performing a complete logging operation, including the transportation of the logs by trucks to a millpond, sawmill, or other designated place, a logging contractor is not a "person engaged in the business of transporting property for hire" within the meaning of section 4272(a) of the Code. Accordingly, payments for such a complete logging operation are not subject to the tax on transportation of property.
However, where a logging contractor engages a subcontractor under circumstances which make him an independent contractor, to haul the logs which the logging contractor has cut and delivered to a designated place, the subcontractor is a "person engaged in the business of transporting property for hire" within the meaning of the Code. Accordingly, payments received by the subcontractor are subject to the tax on transportation of property. The same is true where the lumber company contracts with a person who performs only the hauling and other services which are accessorial to the hauling. Furthermore, the cost incurred in building roads over which the logs are hauled and in maintaining and repairing equipment used for that purpose is not deductible from the contract price for hauling the logs in computing the transportation tax.
In the instant case, since both A and B contracted to perform the complete logging operations, no part of the payments to them by the lumber company are subject to the tax on transportation of property. However, since C contracted with B only for the loading and hauling operations, the entire amount paid by B to C is taxable.