Did California's food-container regulation amendment end the exemption for nonreturnable containers sold to commercial packers?

Plain-English summary

California said a recent Regulation 1589 amendment did not narrow the existing treatment of nonreturnable containers sold empty to commercial packers. Under the Board's stated long-standing interpretation of section 6364, tax did not apply when the packer placed another person's products in the containers for later sale.

The amendment expressly addressed persons placing food for human consumption into containers. Assistant Chief Counsel Gary J. Jugum said the Board had failed to account for its broader commercial-packing interpretation and did not intend to reverse earlier administrative determinations or restrict the exemption. He directed that the point be annotated.

Internal request, historical examples, live additions, and missing implementation

Jugum's memorandum to Board employee Jerry Cornelius responds to an email dated February 14, 1997. The email, question wording, amendment package and rulemaking record are absent.

Regulation 1589(b)(1)(B), as summarized in the memorandum, exempted empty nonreturnable containers sold to persons who placed food for human consumption in them for later sale. The source does not reproduce the full regulation, amendment date, operative date, notice, statement of reasons or Board minutes.

The Board's claimed long-standing section 6364 interpretation was broader: empty nonreturnable containers sold to persons commercially packaging other owners' products for later sale were not taxed. The source gives no requirement beyond nonreturnability, sale without contents, packaging for others and subsequent sale, and no specific current transaction.

Jugum cited two historical examples. Annotation 195.1260 reportedly recognized by April 1, 1953 that baling wire sold to persons commercially baling alfalfa for others was not taxed. Annotation 195.0330, dated April 19, 1989, concerned commercial cotton ginners. Neither supporting opinion or underlying transaction is reproduced, so those facts are not applied beyond the stated examples.

The memorandum says the Board did not intend its Regulation 1589 amendment to reverse prior administrative determinations or otherwise restrict the exemption and ends: This memorandum should be annotated to make that point clear. It supplies no later publication act, taxpayer application, audit, assessment, claim, appeal or outcome.

The live 400.0032 annotation preserves the nonreturnable empty containers, commercial packaging for others, subsequent sale, section 6364 interpretation and no-restriction intent. It says amendments to both Regulations 1589 and 1630 and ends (M99–1). The supporting memorandum names only Regulation 1589 and contains no M99–1 reference, so those live additions are identified rather than attributed to the March 5 source.

The official one-page PDF has a clean rendered text layer and no body-page 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

Commercial packers

The historical interpretation covered empty nonreturnable containers used to package another owner's product for later sale, not just food containers. Document ownership of contents, the packing service, container returnability and the later product sale.

Accountants and tax professionals

Do not read a food-specific amendment in isolation from the agency's contemporaneous administrative interpretation. Verify current section 6364 and Regulations 1589 and 1630, then preserve contracts, invoices and resale records.

Common questions

Was the treatment limited to food containers?

No. The memorandum describes the Board's section 6364 interpretation as covering commercial packaging for others more generally.

What kind of container sale did it address?

Nonreturnable containers sold without contents to the commercial packer.

Who used the containers?

Commercial packers placing other persons' products into them for subsequent sale.

Did the memorandum say the amendment intentionally restricted the exemption?

No. It said the Board did not intend to reverse prior administrative determinations or otherwise restrict the exemption.

What historical examples did counsel cite?

Commercial alfalfa balers buying baling wire in 1953 and commercial cotton ginners in a 1989 annotation.

Did the supporting memorandum discuss Regulation 1630?

No. The live annotation adds Regulation 1630 and (M99–1); the March 5 memorandum names only Regulation 1589.

Was a taxpayer's container sale decided?

No. This was internal guidance directing an annotation, with no transaction, measure, assessment or implementation record.

Citations and references

• California Revenue and Taxation Code section 6364 — long-standing container interpretation described
• California Sales and Use Tax Regulation 1589(b)(1)(B) — recently amended food-container provision discussed
• Business Taxes Law Guide Annotations 195.1260 and 195.0330 — historical commercial-baling and cotton-ginning examples cited
• February 14, 1997 email; amendment and rulemaking record; prior administrative determinations; packer, contents owner and customer; products and containers; contract, invoices and resale documents; tax measure; return; audit; assessment; claim; appeal; and implementation — referenced, described or implicated but not included

Verbatim support

From the official March 5, 1997 memorandum:

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.

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.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0032
• Original supporting opinion: 400.0032 PDF

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

400.0032

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