Were empty pallets sold to trucking companies to replace loaded pallets taken from customers taxable in California?

Plain-English summary

A pallet seller asked whether trucking companies owed tax when they bought empty pallets to replace loaded pallets taken from their customers.

California classified the replacement pallets as returnable containers. The seller's sales of those pallets to the trucking companies were taxable.

One trucking company supplied an exemption certificate prepared under Washington's retail sales tax law. California said that certificate was irrelevant to the transaction's treatment under California sales and use tax law.

Common questions

Why were the pallets taxable?

They were empty replacement pallets used as returnable containers by the trucking companies.

Did the Washington certificate protect the California sale?

No.

Citations and references

• Cal. Rev. & Tax. Code § 6051 — general retail-sales tax rule stated
• Cal. Rev. & Tax. Code § 6007 — retail sale defined as a sale other than resale in the regular course of business
• Cal. Civ. Code § 1656.1 — contractual collection of sales-tax reimbursement referenced
• Cal. Rev. & Tax. Code § 6364 and Regulation 1589 — pallet and returnable-container treatment applied; the regulation copy listed as enclosed with the response is not included in the official PDF
• Requester's March 8, 1996 letter — tax question and Washington exemption certificate described; separate letter not reproduced in the official PDF
• G--- T---, Inc. Washington Retail Sales Tax Law exemption certificate — described as enclosed with the request; certificate not included in the official PDF

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/195-1562.pdf

Original ruling text

STATE OF CALIFORNIA
195.1562
STATE BOARD OF EQUALIZATION
JOHAN KLEHS
LEGAL DIVISION (MIC:82)
First District, Hayward
450 N STREET, SACRAMENTO, CALIFORNIA
DEAN ANDAL
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082) Second District, Stockton Telephone: (916) 324-2614
FAX: (916) 323-3387
ERNEST J. DRONENBURG, JR.
Third District, San Diego

BRAD SHERMAN
Fourth District, Los Angeles

KATHLEEN CONNELL
Controller, Sacramento
May 10, 1996
────────

E. L. Sorensen, Jr.
Executive Director

Ms. G--- S---
P--- P--- E---
XXXX --- --- Way
--- ---, CA XXXXX

Re: P--- P--- E---
Account No. SR -- XX-XXXXXX

Dear Ms. S---:

This is in response to your letter dated March 8, 1996, regarding the application of sales tax to your sales of pallets to trucking companies. You ask “whether trucking companies purchasing empty pallets to replace the loaded ones taken from their customers are liable for sales tax on the pallets.”

With your letter, you have enclosed a copy of an exemption certificate which appears to be executed by G--- T---, Inc. pursuant to the Washington Retail Sales Tax Law. You ask whether that exemption certificate exempts G--- T---, Inc. from its tax liability, if any, under the California Sales and Use Tax Law.

DISCUSSION

Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax.
Code § 6007.) Sales tax is imposed upon the retailer, but the retailer may collect sales tax reimbursement from the purchaser if the contract of sale so provides. (Civ. Code § 1656.1.)

The exemption relevant to the transaction at issue is provided by Revenue and Taxation Code section 6364, which exempts sales of containers under specific conditions. This statute is interpreted in Sales and Use Tax Regulation 1589 (copy enclosed) which provides that the term "container" includes articles on which tangible personal property is placed for shipment, and specifically includes pallets. Pallets may be classified as either returnable or nonreturnable

Page 2

Ms. G--- S--- -2- May 10, 1996
195.1562

containers, depending on how the pallets are used. Subdivision (a) of Regulation 1589 defines the term "returnable containers" as containers of a kind customarily returned or resold by the buyers of the contents for re-use by the packers, bottlers, or sellers of the commodities contained therein. All other containers are "nonreturnable containers."

The empty pallets purchased by the trucking companies to replace loaded ones taken from their customers constitute returnable containers. Your sales of the pallets to the trucking companies for such use are subject to tax. (Reg. 1589(b)(1).)

We note that the exemption certificate G--- T---, Inc. provided to you was apparently executed pursuant to the Washington Retail Sales Tax Law and is irrelevant as to the proper application of tax under the California Sales and Use Tax Law.

If you have further questions, please feel free to write again.

Sincerely,

Sophia H. Chung
Staff Counsel

SHC:rz
Enclosure

cc: Sacramento District Administrator (KH)