Sales and Use Taxes on Transportation Services
PURPOSE: On December 29, 1995, H.R. 2539, the Interstate Commerce Commission Termination Act, was signed into law as Public Law 104-88. This federal legislation contains a provision prohibiting any state tax on the interstate transportation of passengers by motor carrier, effective January 1, 1996. This Special Notice describes the effect of Public Law 104-88 on the imposition of sales and use taxes on transportation services under Conn. Gen. Stat. §12-407(2)(m), as defined in §12-407(28).
EFFECTIVE DATE: Effective upon issuance and applicable to sales of services involving the transportation of passengers occurring on or after January 1, 1996.
STATUTORY AUTHORITY: Pub. L. No. 104-88 §14505, 109 Stat. 803 (to be codified as 49 U.S.C. §14505); Conn. Gen. Stat. §12-407(2)(m); Conn. Gen. Stat. §12-407(28); Conn. Gen. Stat. §12-412(2).
TRANSPORTATION SERVICES PREVIOUSLY TAXED: Since July 1, 1992, the provision of transportation services involving the transportation of any person over any distance by a service provider who is required to be authorized to do business in Connecticut by the Connecticut Department of Transportation or by the Interstate Commerce Commission, or both, in order to provide such transportation has been treated as a sale subject to the Sales and Use Taxes Act when the transportation:
- originates and terminates in Connecticut; or
- originates in Connecticut and terminates outside Connecticut, when the service is charged to a customer or account located in Connecticut; or
- originates outside Connecticut and terminates in Connecticut, when the service is charged to a customer or account located in Connecticut.
SCOPE OF TAXABLE SERVICES LIMITED AS OF JANUARY 1, 1996 BY FEDERAL LEGISLATION: Section 14505 of Public Law 104-88 provides as follows:
"A State or political subdivision thereof may not collect or levy a tax, fee, head charge, or other charge on---
- a passenger traveling in interstate commerce by motor carrier;
- the transportation of a passenger traveling in interstate commerce by motor carrier;
- the sale of passenger transportation in interstate commerce by motor carrier; or
- the gross receipts derived from such transportation."
Conn. Gen. Stat. §12-412(2) exempts from sales and use taxes "sales of tangible personal property or services which this state is prohibited from taxing under the constitution or laws of the United States."
The effect of the federal legislation is to prohibit the taxation by the State of Connecticut of transportation services such as those enumerated in Conn. Gen. Stat. §12-407(2)(m) and defined in §12-407(28), when such services involve the interstate transportation of passengers for hire by motor vehicle.
Therefore, effective January 1, 1996, transportation services will be subject to sales and use taxes only when the transportation originates and terminates in Connecticut and does not leave Connecticut, regardless of whether the customer or account is located in Connecticut.
EXCLUDED TRANSPORTATION SERVICES: Transportation services provided by (A) any person along a regular, scheduled route, (B) any person causing to be operated a taxicab, as defined in Conn. Gen. Stat. §13b-95, or (C) any person causing to be operated a commercial motor vehicle, as defined in Conn. Gen. Stat. §14-1(a)(11)(B) will not be treated as sales subject to the Sales and Use Taxes Act.
A regular, scheduled route means, generally, service that provides regular set stops on a route, a regular schedule of service and per passenger fares varying by stops and/or zones. Regular, scheduled route service is usually operated in motorbus type vehicles or specially designed or modified vans or multi-door vehicles.
A commercial motor vehicle is defined in Conn. Gen. Stat. §14-1(a)(11)(B) to include any vehicle that is designed to transport sixteen or more passengers, including the driver, or any vehicle that is designed to transport more than ten passengers, including the driver, and that is used to transport students under the age of twenty-one years to and from school.
TRANSPORTATION SERVICE PROVIDERS: All operators of motor vehicles (except taxicabs and commercial motor vehicles, as described above) in livery service, offering charter-type service between all points in Connecticut on an unscheduled, irregular route basis, which are required to be licensed or authorized under Chapter 244b (§§13b-101 et seq.) of the Connecticut General Statutes will be treated as transportation service providers. However, on and after January 1, 1996, operators that hold authority from the Interstate Commerce Commission (or its successor) and are not required to be licensed or authorized under Chapter 244b to perform transportation services, will no longer be treated as transportation service providers.
REGISTRATION: Anyone described in this Special Notice as a transportation service provider must register with the Department of Revenue Services for purposes of the Sales and Use Taxes Act by completing a Form REG-1, Application for Tax Registration Number.
THE PURCHASE OF TRANSPORTATION SERVICES FOR RESALE TO OTHERS: The provision of transportation services by a transportation service provider described in this Special Notice to any person other than another such service provider is a retail sale. A person described in this Special Notice as a transportation service provider may purchase transportation services on a resale basis and issue a resale certificate, where the transportation services will be resold to others. Other persons, such as travel agents, tour brokers, restaurants, funeral homes, etc. may not purchase transportation services on a resale basis; sales of such services to them are retail sales, and they are consumers of such services even where they pass through the cost of such services to their clients or customers. Vehicles used to provide transportation services may not be purchased on a resale basis by transportation service providers.
CHARGES MADE FOR TRANSPORTATION SERVICES: Charges by transportation service providers for incidental or additional items provided during or in connection with transportation services, such as beverages, food, cellular telephone calls, videos, tolls, fuel, waiting time and mandatory tips or gratuities, whether or not separately stated, are considered to be charges for transportation services and are subject to sales and use taxes. Charges for services or items not provided during or in connection with the actual transportation of passengers, such as meals served in restaurants, lodging and tickets to events, are not considered to be charges for transportation services when separately stated. Transportation service providers who provide "package" tours for a single price, including items or services that are both taxable and not taxable as transportation services, will have the burden of establishing that the charges for transportation services are reasonable and have not been understated for tax avoidance purposes.
EXEMPT SALES: The provision of transportation services to United States governmental agencies, Connecticut state agencies, Connecticut municipalities or charitable or religious organizations will be treated as sales exempt from the Sales and Use Taxes Act. Transportation service providers must obtain the appropriate exemption certificates from such entities at the time of sale. See SN 95(10).
SERVICES TO THE HANDICAPPED OR ELDERLY: The provision of transportation by municipalities or nonprofit entities to the handicapped, elderly or other persons are not treated as sales subject to the Sales and Use Taxes Act, as long as no charges are made for such services.
EFFECT OF THIS DOCUMENT: A Special Notice is a document that announces a new policy or practice in response to changes in State or federal laws or regulations or to judicial decisions. A Special Notice indicates the Department's informal interpretation of Connecticut tax law and may be referred to for general guidance by taxpayers or tax practitioners.
EFFECT ON OTHER DOCUMENTS: SN 91(16.1) is modified in part and superseded in part, and should not be relied on for sales occurring on or after January 1, 1996.
Sales and Use Taxes