Could bubble pack, styrofoam pellets, and formed-in-place foam be bought for resale as container components?

Plain-English summary

California treated styrofoam pellets, bubble pack and injected gases that set up as a conforming styrofoam sponge as packing materials used as containers or container parts. Their tax treatment depended on whether the purchaser also sold the shipped goods and how the materials were used.

If an independent shipper used property simply to condition, preserve or protect goods during shipment, Regulation 1630 made the shipper the consumer and the sale taxable in all cases. These foam materials qualified as containers or container parts, so an independent shipper could seek resale treatment only by meeting every Regulation 1630(b)(2) condition, including passing title before use. If the purchaser also sold the shipped goods, Regulation 1589 applied and the materials could be bought ex-tax as parts of nonreturnable containers resold with the contents.

Packing question, role-and-use branches, and missing transaction facts

The redacted requester wrote Board legal staff April 19, 1988; the Board received the letter June 1. Tax Counsel John Abbott answered August 23 by quoting three questions and responding to each. The request itself and all supporting materials are absent.

Question 1 described styrofoam pellets commonly called peanuts or popcorn, two laminated plastic-film layers trapping air as bubble pack, and special gases injected into a container to form a fitted styrofoam sponge for fragile glass or electronic parts. The requester proposed that all fell within packing and crating materials under Regulation 1630. These are general examples; no actual product, shipment, invoice, buyer, seller, quantity, price or tax amount is supplied.

Abbott could not tell whether the material purchaser was also the seller of the shipped tangible personal property. For an independent shipper, Regulation 1630 distinguished material used to condition, preserve or protect goods from material used as containers or container parts. Preserve-and-protect use made the shipper the consumer and every sale to it taxable.

Abbott classified pellets, bubble pack and formed-in-place foam as packing materials used like excelsior and as containers or container parts. An independent shipper therefore received Regulation 1630(b)(2) treatment: its purchase remained taxable unless every resale condition was met. The letter gives two examples—the shipper must not sell the contents and must pass title to the container or parts before using them—but does not reproduce every condition or any contract and title evidence.

When the shipper was also the goods seller, Regulation 1589 rather than 1630 applied. Materials bought without contents and later sold with contents became parts of nonreturnable containers and could be purchased ex-tax for resale. The sales price of the shipped goods included the container. The source supplies no resale certificate, invoice, container charge, title term or completed transaction.

The live 400.0016 annotation says packers and shippers using these materials to protect goods are taxable consumers, while persons who also sell the shipped property may buy them for resale as nonreturnable-container parts. The supporting letter additionally recognizes a conditional Regulation 1630(b)(2) resale branch for an independent shipper using the materials as container parts, which the live summary does not spell out.

Financial-report periodical question

Question 2 asked about a corporation issuing three quarterly financial statements and, for the fourth fiscal quarter, an annual report that recapped and expanded the information. Abbott said Regulation 1590(a)(2) exempted all four as a periodical series issued at average intervals not exceeding three months. If an annual report instead was separate from the quarterly series, the annual report was taxable while four quarterly reports formed an exempt periodical.

The letter cites Business Taxes Law Guide Annotations 385.1000 and 385.1060 but does not reproduce their sources. It gives no corporation, publication, issue dates, formats, content, circulation, printer, price, invoice, exemption claim or outcome. This separate question is not the subject of Annotation 400.0016.

Financial-report mailing question and statute-number conflict

Question 3 asked about printers mailing quarterly or annual reports to out-of-state shareholders, using a mailing house, or printing outside California. Abbott assumed the reports were not exempt periodicals; if they were, that exemption applied regardless of mailing circumstances.

The source first says printed sales messages meeting Revenue and Taxation Code Section 6279.5 and Regulation 1541.5 delivery conditions are exempt, then says financial reports are not printed sales messages within Section 6379.5 because their principal purpose is not advertising goods or services. The official text supplies both numbers and does not resolve which was intended, so this page preserves the conflict.

Direct printer mailing to out-of-state shareholders qualified under section 6396 and Regulation 1620(a)(3)(B) if every condition was met. Delivery to a purchaser-designated mailing house also qualified when the printer-purchaser contract required out-of-state shipment and made the mailing house a forwarding agent. Simple delivery followed by later purchaser instructions to mail out of state did not; storage for the purchaser also made the sale taxable because shipment did not occur under the sale contract.

For an out-of-state printer sending reports to a California mailing house, sales tax did not apply but use tax did under Regulation 1620(b). The mailing house's California receipt and preparation as purchaser's agent was taxable use even if it later mailed the reports outside California. Reports mailed to in-state shareholders were taxable.

The letter cites Annotation 325.1560 dated October 30, 1964 without reproducing it. It says Regulations 1541.5, 1590 and 1620 were enclosed, but the official PDF includes no enclosure. No report, shareholder list, printer or mailing-house contract, shipment, storage, invoice, measure, return, audit or outcome is supplied.

The official three-page PDF has a clean rendered text layer and only a small seal image. Two fresh downloads and extractions matched exactly, and the preserved source tail remains byte-identical after removal of only pdftotext's terminal newline and form feed. No case citation appears.

Common questions

Did California regard these materials as container components?

Yes. Abbott classified all three as containers or container parts used like excelsior.

Was every sale to a packing or shipping company exempt?

No. An independent shipper using them only to preserve or protect goods was the consumer. Container-part use could qualify only if every Regulation 1630(b)(2) condition was met.

What if the buyer also sold the goods being shipped?

Regulation 1589 allowed purchase ex-tax for resale as nonreturnable-container parts sold with the contents.

Does this page summarize the source's financial-report questions?

Yes, separately, because the same official letter answers them even though Annotation 400.0016 covers packing materials.

Were three quarterly reports plus a fourth-quarter annual report exempt?

Yes on the stated format. Abbott treated them as a four-publication series at average intervals not exceeding three months; a separate annual report outside that series was taxable.

Was printer delivery to any mailing house exempt?

No. The contract had to require out-of-state shipment through the purchaser-designated forwarding agent. Later mailing instructions or purchaser storage in California defeated that analysis.

Did the source clearly identify the printed-sales-message statute?

No. It prints section 6279.5 in one sentence and section 6379.5 in the next.

Are the cited regulation enclosures available?

No. The source says Regulations 1541.5, 1590 and 1620 were enclosed, but the official PDF ends without them.

Citations and references

• California Sales and Use Tax Regulation 1630(b)(2) — treatment when the shipper is not the contents seller
• California Sales and Use Tax Regulation 1589(b)(1)(A) — nonreturnable-container treatment when the shipper sells the contents
• California Sales and Use Tax Regulations 1541.5, 1590(a)(2), 1620(a)(3)(B), and 1620(b)
• California Revenue and Taxation Code sections 6279.5 and 6379.5 — conflicting printed references for the sales-message exemption
• California Revenue and Taxation Code section 6396 — interstate shipment
• Business Taxes Law Guide Annotations 385.1000, 385.1060, and 325.1560 — cited but not reproduced
• April 19 request; parties and roles; goods and packing materials; contracts, title and resale documents; financial reports and publication series; printers, mailing houses and shipment records; invoices and prices; tax measures; returns; audits; assessments; claims; appeals; and outcomes — described, assumed or implicated but not included

Verbatim support

From the official August 23, 1988 letter:

Our view is that the styrofoam pellets, bubble packs, and gases injected to form styrofoam sponge are all used as packing materials in the same manner as excelsior, and qualify as property used as containers or parts of containers of the goods shipped.

If the shipper is also the seller of the property shipped, then the applicable regulation is Regulation 1589, not Regulation 1630.

The annual report constitutes one of a series of a publication issued by the corporation at average intervals not exceeding three months.

Where the printer delivers the reports to a mailing house designated by the purchaser, pursuant to a contract between the printer and the purchaser which requires out-of-state shipment, we regard the mailing house as a forwarding agent, and the transaction would likewise qualify for the sales tax exemption provided by Section 6396.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0016
• Original supporting opinion: 400.0016 PDF

Original ruling text

400.0016

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-6493

August 23, 1988
Dear [X]
In your letter to the Board’s legal staff dated April 19, 1988, which we received June 1, 1988, you request written clarification on the application of the Sales and Use Tax Law and Board regulations to three different situations. I have quoted below the questions you raise, followed by our response to each. Question “1. Sellers of personal property frequently ship their product to the purchaser. Regulation 1630 sets forth, among other things, a list of ‘Property Used as Containers or Parts of Containers of the Goods Shipped’. Included in this list is ‘excelsior and other packaging material’. Very often styrofoam pellets, commonly called ‘peanuts’ or ‘popcorn’ because of their shape, are used as packing materials in the same manner as excelsior. Also frequently used is ‘bubble pack’, consisting of two layers of plastic film laminated together in such a way as to trap bubbles of air between the layers to achieve a cushioning effect. The ‘bubble pack’ is usually wrapped around the product or used as cushioning layers in packing. Another increasingly popular method of packaging items, particularly extremely fragile glass or electronic parts is the use of special gasses which are injected into the container and ‘set up’ to form a styrofoam sponge which conforms to the shape of the product. It would seem that all of these packing materials would fall under the description of packing and crating materials and would be exempt from sales tax under the container exemption. Please confirm or correct this interpretation of Regulation 1630.” Answer. We cannot determine from your letter whether the shipper who purchases these packing and crating materials is also the seller of the tangible propel1y being shipped. If the shipper is not also the seller, then the applicable regulation is Regulation 1630. That regulation distinguishes between property used to condition goods for shipment or preserve and protect the goods during shipment, on the one hand, and property used as containers or as parts of containers of the goods shipped on the other hand. If the shipper uses the property to preserve and protect goods during shipment, the shipper is the consumer of the property, and the sale to the shipper is a taxable retail sale in all cases. However, if the shipper uses the property as a container or as parts of a container, the sale to the shipper is a taxable retail sale unless all the conditions are met which allow the shipper to regard the sale to him as an exempt sale for resale, under the provisions of Regulation 1630(b)(2). For example, the shipper must not be the seller of the contents, and must pass title to the container or container parts prior to use.

[X]

-2-

August 23, 1988
400.0016

Our view is that the styrofoam pellets, bubble packs, and gases injected to form styrofoam sponge are all used as packing materials in the same manner as excelsior, and qualify as property used as containers or parts of containers of the goods shipped. Therefore, tax applies in the manner set forth in Regulation 1630(b)(2). If the shipper is also the seller of the property shipped, then the applicable regulation is Regulation 1589, not Regulation 1630. In this case, the packing and crating materials are parts of nonreturnable containers. Since the shipper purchases these materials without the contents (the property being shipped), and then sells the contents together with the container, the shipper may purchase these materials ex-tax for resale. The sales price of the property shipped also includes the nonreturnable container used for the shipping. (Regulation 1589(b)(1)(A). Question “2. It is understood that quarterly financial statements are exempt as periodicals. An annual report has been regarded as taxable due to the fact that it is not one of a series and has a different format. Please clarify the taxability of financial reports in cases where a corporation publishes three quarterly reports and in the last of its fiscal quarters recaps and expands the information in its annual report, which is the only report issued for the fourth quarter.” Answer. Our opinion is that under the facts you relate, Regulation 1590(a)(2) provides an exemption from sales and use tax for both the three quarterly reports and the fourth-quarter annual report as a tax-exempt periodical. The annual report constitutes one of a series of a publication issued by the corporation at average intervals not exceeding three months. You are correct, however, that where the corporation issues the annual report separate and apart from its quarterly report series, then the annual report would be taxable while the four quarterly reports would be a tax exempt periodical. (Business Taxes Law Guide annotations 385.1000 and 385.1060). Question “3. Are quarterly or annual financial reports taxable in California when mailed directly from the printer to shareholders at addresses out-of-state? Would the delivery of the reports by the printer to a mailing house affect the taxability of the transaction? If the printer were located outside of California, would the taxability of the transaction be affected?” Answer. I assume that in this question you are referring to financial reports, which are not exempt periodicals. If they were, the periodicals exemption would apply regardless of the circumstances of mailing or delivery. There is also a statutory exemption from sales and use taxes for printed sales messages, which meet the conditions for delivery required by Revenue and Taxation Code Section 6279.5 and Regulation 1541.5. However, we do not consider quarterly or annual financial reports to be printed sales messages with the meaning of Section 6379.5 since these reports are not printed for the principal purpose of advertising goods or services. Thus, the exemption afforded to printed sales messages does not apply to the facts you present.

[X]

-3-

August 23, 1988
400.0016

When the printer prints and mails these reports directly to shareholders at out-of-state addresses, the transaction qualifies as an interstate shipment exempt from sales tax under Revenue and Taxation Code Section 6396 and Regulation 1620(a)(3)(B), if all of the conditions for the exemption are met as set out in that regulation. Where the printer delivers the reports to a mailing house designated by the purchaser, pursuant to a contract between the printer and the purchaser which requires out-of-state shipment, we regard the mailing house as a forwarding agent, and the transaction would likewise qualify for the sales tax exemption provided by Section 6396. However, if the printer simply delivers the reports to a mailing house, and thereafter the mailing house mails the reports out of state on instructions of the purchaser, the sale is not exempt. (Business Taxes Law guide Annotation 325.1560 (10/30/64). This assumes that the mailing house does nothing with the reports other than to prepare them for mailing. For example, if the mailing house were to store the reports on behalf of the purchaser, then the transaction would be subject to tax because the property was not actually shipped out of the state pursuant to the contract of sale between the printer and the purchaser. If the printer is located outside of California, but the mailing house is located in California, and the printer prints and mails the reports to the mailing house, then the sales tax would not apply to the transaction, but the use tax would apply. (Regulation 1620(b)). Even though the mailing house later mails these reports to out-of-state addresses, our view is that the purchaser makes a taxable use of the property in California when a mailing house acting as its agent receives the reports and prepares them for mailing to out-of-state shareholders. In any case, we note that reports mailed to in-state shareholders would be subject to tax. I enclose copies of Regulations 1541.5, 1590, and 1620 for your information. Please feel free to contact me if you have any further questions or comments about this letter. Sincerely,

John Abbott
Tax Counsel
JA:jb
Enclosures