Could commercial packers buy nonreturnable containers tax-free when filling them with customers' products for resale?

Plain-English summary

California had long treated sales of nonreturnable containers to commercial packers as exempt when the packers filled them with other people's products for later sale.

The memorandum says the recent Regulation 1589 amendment was not intended to reverse that position or restrict the exemption. It cites earlier treatment of baling wire used to package another person's alfalfa and a separate annotation concerning commercial cotton ginners.

Common questions

Did the Regulation 1589 amendment intentionally narrow the commercial-packer exemption?

No. The memorandum expressly says the Board did not intend to reverse prior administrative determinations or otherwise restrict the exemption.

Citations and references

• California Revenue and Taxation Code section 6364 — longstanding commercial-packer container exemption interpreted
• California Code of Regulations, title 18, section 1589(b)(1)(B) and its recent amendment — food-container text and Board intent discussed; amendment date and rulemaking record not supplied in the official PDF
• Business Taxes Law Guide Annotation 195.1260 (April 1, 1953) — commercial alfalfa baling-wire treatment cited
• Business Taxes Law Guide Annotation 195.0330 (April 19, 1989) — commercial cotton-ginner treatment cited
• Requester's February 14, 1997 email — question referenced; separate email not reproduced in the official PDF
• Prior administrative determinations concerning commercial packers — collectively invoked but not individually identified beyond the two named annotations

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/195-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/195-0311.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

195.0311

Memorandum

To:

Mr. Jerry Cornelius - MIC:40

From:

Gary J. Jugum
Assistant Chief Counsel

Subject:

Containers

Date:

Telephone:

March 5, 1997

(916) 445-3723
CalNet 485-3723

This is in response to your e-mail of February 14, 1997.
As you are aware, Regulation 1589 was recently amended. That regulation now provides in paragraph (b)(1)(B) that tax does not apply to sales of nonreturnable containers when sold without the contents to persons who place food products for human consumption in the containers for subsequent sale. At the time the regulation was amended, we failed to take into account the fact that it had been our long-standing interpretation of Revenue and Taxation Code section 6364 that tax did not apply to sales of nonreturnable containers without the contents to persons who engaged in commercial packaging for others by placing those persons’ products into the containers for subsequent sale. Thus, as early as April 1, 1953, we recognized that tax does not apply to sales of baling wire to persons who use the baling wire in the commercial bailing of alfalfa for others. BTLG Annot. 195.1260. See also Annotation 195.0330 re commercial cotton ginners (4/19/89). It was not the intention of the Board in amending Regulation 1589 to reverse prior administrative determinations or otherwise restrict the exemption. This memorandum should be annotated to make that point clear.

GJJ:sr