How could a shipper prove it sold packing materials to its customer before using them?

Plain-English summary

California said an independent shipper had to document its sale of packing materials before using them. Regulation 1630(b)(2) required an express customer contract, separate charge, title passage before any use, and no understanding or trade custom that materials would return for reuse.

The title clause had to appear in a quotation, acknowledgment or other contract document executed before packing. A clause appearing only on an invoice did not prove timely title passage. The letter approved wording stating that title to all packing material passed to the customer before any use.

When every condition existed, the shipper could give its supplier a resale certificate. The shipper's own sale to the customer remained taxable unless exempt as a sale to the United States, in interstate or foreign commerce, or for another reason. No actual transaction or exemption outcome is supplied.

Quoted regulation, approved clause, records, and missing transaction

On March 22, 1977, redacted Mr. D--- R--- asked the Board to write to a redacted company about Regulation 1630, Packers, Loaders, and Shippers. The April 18 response is addressed to the company and the attention of another redacted person. The request, relationship between the people, and attachments are absent.

The quoted Regulation 1630(b)(2) applied when the shipper was not the contents seller. A supplier's sale of containers, materials or parts to that shipper was retail and taxable unless the shipper expressly contracted to sell them to its customer, made a separate charge, passed title before any use, and had no return-for-reuse understanding or trade custom. The source gives no facts showing any condition was met.

Gary J. Jugum, Tax Counsel, repeated that each condition mattered and focused on timing proof. The express agreement had to be executed before packing, and the shipper had to retain documents establishing when title passed.

The Board had recognized the sentence Customer agrees that title to all packing material passes to customer before any use of such material is made. It could be printed or stamped on quotation sheets, acknowledgments or other contract documents. The source approves the wording as sufficient timing evidence but does not say the requester used it.

An invoice-only title clause failed because an invoice did not establish that the agreement existed before packing use. The opinion supplies no quote, acceptance, acknowledgment, invoice date, packing date, title record, customer payment or later finding.

If all conditions existed, the shipper could buy from its supplier for resale with a resale certificate. Its customer sale still was taxable unless separately exempt, with sales to the United States and interstate or foreign commerce given as examples. No customer, destination, government buyer, shipment or other exemption is identified.

The live 400.0028 annotation preserves the separate charge, no return, pre-use title, pre-packing document, retained records and invoice-only failure. It omits the independent-shipper premise, supplier resale-certificate consequence, normally taxable customer sale, listed exemption possibilities, approved clause text and missing transaction record.

The official two-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.

What this means for you

Independent packers and shippers

Put the container sale and title-passage term in the customer contract before packing begins, charge separately, and avoid any return-for-reuse agreement or trade custom if claiming resale treatment.

Accountants and tax professionals

Retain the dated quotation, acknowledgment or other contract evidence, acceptance, separate charge, supplier resale certificate, packing time, title passage and proof of no return practice. Then analyze the shipper's customer sale separately.

Common questions

Was a separate charge required?

Yes. The quoted rule required a separate customer charge for the container or material.

Could the materials be returned for reuse?

No understanding or trade custom of return for reuse could exist.

Was a title clause on the invoice sufficient?

No. The title term had to be in a contract document executed before packing.

What records did the shipper need?

Documents establishing the time title passed, such as the pre-packing quotation, acknowledgment or other contract record.

Did the letter approve specific wording?

Yes. It approved a sentence stating that title to all packing material passes to the customer before any use.

Did satisfying Regulation 1630 make the customer's purchase tax-free?

Not automatically. It let the shipper buy for resale; the shipper's customer sale remained taxable unless another exemption applied.

Did the requester prove compliance?

The source gives no actual contract, charge, title timing, return practice, resale certificate, customer sale or outcome.

Citations and references

• California Sales and Use Tax Regulation 1630(b)(2) — container-sale conditions quoted and applied
• March 22, 1977 inquiry — referenced but not included
• Shipper, customer, contents and materials; supplier; contract, quotation and acknowledgment; separate charge and invoice; title and packing times; return practice; resale certificate; customer sale and exemption; tax measure; return; audit; assessment; claim; appeal; and outcome — described or implicated but not included

Verbatim support

From the official April 18, 1977 letter:

The express agreement must be in a document executed prior to the packing operation.

Customer agrees that title to all packing material passes to customer before any use of such material is made.

If the title provision appears only on an invoice, the shipper will have failed to establish that title to the packing materials passed to the customer prior to use.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0028
• Original supporting opinion: 400.0028 PDF

Original ruling text

400.0028

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

April 18, 1977

A--- --- I---., Inc.
XXX --- ----- --- ---, CA XXXXX
Attn: Mr. J--- -. F--Gentlemen:

S – XX-XXXXXX

On March 22, 1977, we were asked by Mr. D--- R--- to write to you with respect to the application of our Regulation 1630 “Packers, Loaders, and Shippers.” Regulation 1630 provides, in paragraph (b)(2), as follows: “PROPERTY USED AS CONTAINERS OR PARTS OF CONTAINERS OF GOODS SHIPPED. When the shipper is not the seller of the contents, the sale of the containers or container materials or parts to the shipper is a taxable retail sale unless the shipper expressly contracts with his customer for the sale to his customer of the container or container material, making a separate charge therefore, with title passing from the shipper to his customer before any use of the material is made, and without any understanding or trade custom that the property will be returned to the shipper for reuse. When all of these conditions exist, the shipper may purchase the property for resale by giving a resale certificate to the supplier of the property. The sale of the property by the shipper is taxable unless exempt as a sale to the United States, as a sale in interstate or foreign commerce, or exempt for any other reason.” Mr. R--- inquired as to how a shipper might establish to the satisfaction of the Board that container materials have been sold by the shipper to his customer prior to use. As the regulation indicates, a separate charge must be made to the customer for the packing materials. The materials must not be returned to the shipper for reuse. The contract must expressly provide that title to the packing materials will pass from the shipper to the customer prior to the time the packing materials

A--- M--- I---., Inc.
S- – XX XXXXXX

-2-

April 18, 1977
400.0028

are used for packing. The express agreement must be in a document executed prior to the packing operation. We have recognized the following sentence, which may be printed or stamped on quotation sheets, acknowledgements, or other documents of the contract, as sufficiently establishing that title passed as required. “Customer agrees that title to all packing material passes to customer before any use of such material is made.” The shipper is required to retain documents concerning time of passage of title. The title provision must appear on a document executed prior to packing. If the title provision appears only on an invoice, the shipper will have failed to establish that title to the packing materials passed to the customer prior to use. Very truly yours,

Gary J. Jugum
Tax Counsel