Was a commercial packager subject to shipper rules when its main job was putting products in attractive individual containers for resale?

Plain-English summary

California distinguished a commercial packager's final preparation of goods for sale from a shipper's preservation and protection of goods during transportation. If transportation packing was merely incidental and the predominant function was putting individual goods into attractive containers for ultimate resale, the person should not be treated as a Regulation 1630 shipper.

The memorandum used a more-than-50-percent test: unless the principal portion of the activity's goods-and-services cost prepared, preserved and protected goods during transportation, the packager should not be treated as a shipper. A qualifying marketing packager could accept a resale certificate without a separate price statement or title clause. Borderline customized-shipping cases required case-by-case review of the customer's primary purpose.

Typical operation, regulatory distinction, percentage test, and missing application

Headquarters Legal considered the Long Beach administrator's inquiry and discussed it with other staff. The source gives no inquiry date, wording, attachments or staff identities. The body signs only WEB:po; official PDF metadata names W. E. Burkett.

The question was whether a person packing individual goods into containers for resale customers was a packer, loader or shipper subject to Regulation 1630's separate-price-statement and title requirements. The source does not identify the taxpayer, customer, goods, business or actual tax dispute.

In the typical operation, the packager supplied individual cartons or other containers—otherwise the memorandum says there was no tax problem. It placed goods in containers designed for display or ultimate sale, then grouped the individual packages in fiberboard or similar containers for shipment and storage. Finished goods were returned to the resale customer or held for pickup at its direction.

Regulation 1630 addressed property bought to contain shipped goods and preserve, protect and contain them during transportation. A transportation packer used materials to perform that service and consumed them unless every condition for selling nonreturnable containers before use was met.

The described taxpayer only seems to be distinguishable because transport packing appeared incidental. Its charge was essentially for an attractive individual container and final processing of goods for sale. No contract, charge, price, container, customer instruction, cost allocation or factual computation is included.

Headquarters concluded Regulation 1630 should not apply when transport packing was merely incidental. A person should not be regarded as a shipper unless the principal portion—more than 50 percent—of the activity involved goods-and-services cost for preparing, preserving and protecting goods during transport. The source does not define the denominator, classify mixed costs or apply numbers.

When the predominant function supplied individual containers resold with property and packaged goods for ultimate resale, a resale certificate could exempt the charge despite no separate statement or title clause. No certificate, seller's permit, invoice, resale transaction or subsequent sale is supplied.

Customized shipping containers created a foreseeable borderline. If the main function preserved, protected and packaged goods for transportation, the packer could not obtain the exclusion merely because customized containers remained with goods at sale. Each case required deciding whether the customer primarily bought transport protection or independent final processing and marketing packaging.

The live 400.0190 annotation captures Regulation 1630's transport focus, incidental-transport exception, predominant processing/packaging-for-sale function and resale-certificate consequence. It omits the typical individual-and-fiberboard workflow, goods return or pickup, more-than-50-percent cost test, tentative seems posture, customized-container warning, missing computation and absent outcome.

The official two-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 packagers

Separate attractive individual sale packaging from outer transportation packaging. Document the customer's primary purpose, each container, who supplies it, services performed, disposition and cost allocation.

Accountants and tax professionals

Support the greater-than-50-percent test with a defined denominator and contemporaneous cost and service records. Preserve resale certificates and actual later sales, and treat customized transport containers as fact-sensitive.

Common questions

Did placing groups of individual packages into shipping cartons automatically trigger Regulation 1630?

No, if transport packing was merely incidental to the main marketing-packaging activity.

What threshold did the memorandum state?

More than 50 percent of the goods-and-services cost involved in preparing, preserving and protecting goods during transportation.

What if individual resale packaging was the predominant function?

The packager could accept a resale certificate without Regulation 1630's separate-statement and title-clause requirements.

Were customized shipping containers always treated as marketing packaging?

No. The source required a case-by-case determination whether the customer primarily bought transport protection or final marketing preparation.

Did the source apply the 50-percent test numerically?

No. It supplies no cost categories, amounts, denominator or calculation.

Who authored the memorandum?

The body gives only WEB; the official PDF metadata identifies W. E. Burkett.

Was any taxpayer assessment or outcome decided?

No. This is an internal interpretive response without a transaction measure, audit or outcome.

Citations and references

• California Sales and Use Tax Regulation 1630 — packer, loader, and shipper provisions interpreted
• Long Beach District Administrator inquiry and staff consultations — referenced but not included
• Taxpayer, customers and goods; individual and shipping containers; contracts and title; charges and cost allocation; transport and storage; resale certificates and subsequent sales; invoices; tax measure and rate; return; audit; assessment; claim; appeal; and outcome — described or implicated but not included

Verbatim support

From the official January 4, 1979 memorandum:

It is our conclusion that the provisions of Regulation 1630 should not be applied where the packing of the goods for transportation is merely an incidental part of the activity.

Accordingly, unless the principal portion of the activity (more than 50%) involves the cost of goods and services utilized to prepare, preserve and protect the goods during transportation, the person should not be regarded as a “shipper” subject to the provisions of Regulation 1630.

If the predominant function involves the furnishing of individual containers to be resold with the property and the service of packaging goods in the containers for purposes of ultimate resale, a resale certificate may be accepted to exempt the charge notwithstanding the absence of a separate statement and title clause.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 400.0190
• Original supporting opinion: 400.0190 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Long Beach - District Administrator (JKG)

From:

Headquarters Legal (WEB)

Subject:

[M]

400.0190

Date:

January 4, 1979

I have considered your inquiry at some length and have discussed the matter with other members of our staff. The question presented is whether a person engaged in packing individual containers of goods for marketing by their resale customers are “packers, loaders, and shippers” therefore subject to the separate statement of the price and title requirements of Sales and Use Tax Regulation 1630. We understand that typically the individual carton or other containers will be supplied by the person performing the packaging service (otherwise there is no tax problem). He not only performs the service of packaging the individual goods in containers designed for display or ultimate sale but also performs the service of packing a group of individual containers in a fiberboard container or other similar container used to ship and store the merchandise prior to its ultimate sale. After the work is performed the goods are either returned to the resale customer or held for pickup at his direction. The provisions of Regulation 1630 are directed to persons who purchased tangible personal property “to be used in containing the goods to be shipped and to preserve, protect and contain the goods during transportation.” While persons engaged in this latter activity package goods in containers in the course of performing their services, the activity is clearly directed to transportation of the property and not to preparation of the goods for sale. They are regarded as the consumer of the materials utilized in performing this service unless they meet all of the requirements for providing a sale of the nonreturnable containers prior to use. This taxpayer’s activity seems to be distinguishable in that packing of its goods for transportation is merely an incidental part of its function. Its charge is essentially rendered for furnishing an attractive container for the individual items and the actual packaging of the property as a final step in the preparation (processing) of the goods for sale.

Long Beach – Dist. Admin.
[M]
S- -- XX-XXXXXX

-2-

January 4, 1979
400.0190

It is our conclusion that the provisions of Regulation 1630 should not be applied where the packing of the goods for transportation is merely an incidental part of the activity. Accordingly, unless the principal portion of the activity (more than 50%) involves the cost of goods and services utilized to prepare, preserve and protect the goods during transportation, the person should not be regarded as a “shipper” subject to the provisions of Regulation 1630. If the predominant function involves the furnishing of individual containers to be resold with the property and the service of packaging goods in the containers for purposes of ultimate resale, a resale certificate may be accepted to exempt the charge notwithstanding the absence of a separate statement and title clause. Undoubtedly, a situation will arise in which a packer whose principal function involves the preservation, protection and packaging of the goods for transportation purposes will contend that it is entitled to the exclusion because it customized shipping containers that remain with the property at the time of sale. A decision will have to be made on a case-by-case basis as to whether the customer acquired the service to preserve, contain and protect the goods during transport or primarily as a final processing and packaging for the independent purpose of marketing the products.

WEB:po