Were free-offer stickers and single-digit packer labels exempt container labels?

Plain-English summary

A label seller submitted three stickers announcing a free offer or a buy-one-get-one-free promotion. California classified them as taxable advertising materials because they promoted an offer rather than identifying the product, describing its contents, or explaining how to use it.

The seller also submitted single-digit “packer number” stickers used by employees to identify packaged products internally. Those were taxable too. Internal identification did not become exempt product labeling merely because the stickers stayed on the packages when sold.

Common questions

Could a promotional sticker qualify because it was attached to a package?

No. Its essential function was advertising.

Were packer-number stickers exempt labels?

No. They served internal identification rather than conveying product information to the consumer.

Citations and references

• Sections 6051 and 6007 — general retail-sale rules stated
• Section 6364 and Regulation 1589(b)(2)(B), (c)(1) — container-label exemption and advertising exclusion applied; regulation copy listed as enclosed but not included in the official PDF
• Business Taxes Law Guide Annotations 195.1935 (April 26, 1971), 195.1700 (May 29, 1951), and 195.1860 (March 5, 1965) — product-information, advertising, and internal-identification guidance cited
• Requester's two April 5, 1995 inquiries and six submitted label samples — three quoted promotional labels and three single-digit packer-number stickers described; separate inquiries and samples not reproduced in the official PDF
• Copy to a redacted District Administrator — copy recipient listed; no separate transmittal record supplied 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/195-1695.pdf

Original ruling text

195.1695

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 327-2291
FAX: (916) 323-3387

JOHAN KLEHS
First District, Hayward
DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

July 25, 1995

BURTON W. OLIVER
Executive Director

Mr. T--- S--M--- L--- Systems, Inc.
XXXX East --- Road
---, CA XXXXX

Re:

Taxability of Labels
SR – XX-XXXXXX

Dear Mr. S---:

This letter is in response to two inquiries, each dated April 5, 1995, regarding the application of sales tax to sales of labels. Your first inquiry concerns labels that will be affixed to packages of products sold by your customers. You have included samples of three different labels which your customers have ordered. These three labels, respectively provide: "FREE Offer Enclosed" "FREE! with Purchase of PRESS & GO Nail Colours" "Buy 1 Get 1 FREE" Your second inquiry concerns labels that are used by your customer's employees to label packaged products for identification purposes. The three samples you have provided consist of stickers with single digit numbers.

Mr. T--- S---

-2-

July 25, 1995
195.1695

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.) Revenue and Taxation Code section 6364 exempts from tax the gross receipts from sales of nonreturnable containers when sold without the contents to persons who place the contents in the container and sell the contents together with the container. Sales and Use Tax Regulation 1589 (copy enclosed) applies the container exemption to sales of certain types of labels. Specifically, subsection (b)(2)(B) provides that tax does not apply to sales of labels if: "The purchaser affixes them to nonreturnable containers of property to be sold, or to returnable containers of such property if a new label is affixed to the container each time it is refilled. Examples are sales of labels to be affixed to fruit boxes, cans, bottles and packing cases, to growers, packers, bottlers and others who place the contents in the containers." However, the exemption distinguishes between labels and other types of property such as price tags or advertising materials. Regulation 1589(c)(1) provides: "Tax applies to sales of such items as price tags, shipping tags and advertising matter used in connection with the sale of property or enclosed with the property sold." Labels, sales of which qualify for the exemption, include items attached to containers which identify the product or the producer, describe the contents, or instruct the consumer on the application or use of the product. That is, the essential function of a label, within the meaning of the exemption, is to convey information concerning the product which is placed in the container. (Business Taxes Law Guide (BTLG) Annotation 195.1935 (4/26/71).) The labels included in your first inquiry which respectively announce "Free Offer Enclosed", "Free! With Purchases...", and "Buy 1 Get 1 Free" appear to be advertising materials, the sales of which are taxable pursuant to Regulation 1589(c)(1). The purpose of these labels is to apprise consumers of a free offer or that purchase of one product will entitle the consumer to receive another product free of charge. Since these labels do not describe the contents, or instruct the consumer on the application or use of product sold in conjunction with the manufacturer's offers, the exemption provided under section 6364 does not apply to the sales of these labels. (BTLG Annot. 195.1700 (5/29/51).) The labels which are the subject of your second inquiry are described as "packer numbers" used by your customer's employees for identification purposes. Labels applied to cans primarily for internal identification purposes are self-consumed even if the labels remain on the can when the product was sold. (BTLG Annot. 195.1860 (3/5/65).) Since these labels are to be

Mr. T--- S---

-3-

July 25, 1995
195.1695

used for internal identification purposes and do not describe the contents, or instruct the consumer on the application or use of product, the sales of these labels will not be eligible for the exemption provided under section 6364. If you have any further sales and use tax questions, please feel free to contact this office again. Sincerely,

Patricia Hart Jorgensen
Senior Staff Counsel
PHJ:cl
Enclosure
cc:

--- District Administrator