Did a Florida retailer owe tax on free, one-time-use gift boxes and wrapping paper that accompanied purchased merchandise?

Plain-English summary

Florida required the retailer to pay use tax on its cost of gift boxes and wrapping paper supplied free to customers.

The retailer argued that the materials were exempt because customers were not charged, the boxes and paper were intended for one-time use, and they accompanied the purchased items to their final destination. The Department found those facts insufficient.

Under the rule applied in the advisement, no-charge containers and wrapping qualified when they accompanied the sold product and delivery without them was impracticable because of the product's character. The retailer's merchandise could still be delivered without gift wrapping, so the Department treated the retailer as using the materials rather than reselling exempt packaging.

What this means for you

Retailers offering complimentary gift wrapping

Calling boxes or paper “free” does not by itself eliminate tax. The ruling focused on whether the packaging was needed to make delivery of the merchandise practical, not merely whether the customer requested it or paid a separate charge.

Purchasing and accounts-payable teams

Track complimentary gift-wrapping supplies as retailer-use items when they do not meet the packaging exemption. The tax base in this ruling was the retailer's cost of the paper and boxes.

Accountants and tax professionals

Distinguish functional product packaging from optional presentation packaging. The one-time-use language in section 212.02(14)(c) did not override the rule's delivery-practicality requirement on these facts.

Common questions

Q: Were the boxes and wrapping paper given to customers free? A: Yes.

Q: Did one-time use make the materials exempt? A: No. The Department still required the rule's conditions to be met.

Q: Did it matter that the packaging accompanied the purchased goods? A: That fact alone was not enough because the goods could practicably be delivered without the gift packaging.

Q: Who owed the tax?
A: The retailer owed use tax on its cost of the boxes and wrapping paper.

Q: Can another retailer rely on this TAA? A: Not automatically. The advisement states that it binds the Department only under the facts and circumstances described in the request, and later legal changes or judicial interpretations may produce a different result.

Citations and references

• Fla. Stat. § 212.02(14)(b), (c) — retail-sale treatment and one-time packaging materials
• Fla. Admin. Code r. 12A-1.040(1) — containers, wrapping, and packing materials
• Fla. Admin. Code r. 12A-1.091 — use tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-058

Original ruling text

Nov 27, 1996

Re: Technical Assistance Advisement 96A-058 Sales and Use Tax Imposition of Sales Tax on Wrapping Paper and Boxes Section: 212.02(14), F.S. Rules: 12A-1.040, 12A-1.091, F.A.C.

Dear :

This is in response to your letter of June 27, 1996, wherein you requested a technical assistance advisement concerning the imposition of sales and use tax on wrapping paper and boxes purchased by the retailer and provided to the customer at no charge. You seek confirmation of a letter of technical advice previously rendered by the department on this subject matter. Your request is on behalf of XXXX and its subsidiaries.

According to your letter, it is your understanding that section 212.02(14)(c), Florida Statutes (F.S.), provides that no sales tax is imposed if no charge is made for packaging materials and the materials are intended for one time use only. In addition, you state, the purchase and subsequent distribution of wrapping paper and gift boxes by retailers is not subject to sales or use tax if these items are furnished free of charge and they accompany the purchased goods to their final destination.

DISCUSSION OF FACTS

You provided with and subsequent to your letter of June 27, 1996, dated and executed copies of a Letter of Technical Advice previously rendered by the department. The Letter of Technical Advice addressed the issue of whether wrapping paper and boxes given to the customer for no charge was taxable to the retailer at the time of purchase.

In addition, you provided the following as factual matter:

(1) Your client sells tangible personal property at retail at various locations within the State of Florida.

(2) Your client provides free of charge, at the request of the purchaser, boxes, and wrapping paper, in utilizing the service of wrapping the purchased items.

(3) The boxes and wrapping paper are intended for a one time use by your client.

(4) The boxes and wrapping paper are intended to accompany the purchased items to the customer's final destination.

DISCUSSION OF LAW

STATUTORY AUTHORITY:

The following passage quoted from the Florida Statutes (F.S.) is particularly germane to the matter under consideration:

Section 212.02(14), F.S.
(b) The terms "retail sales," "sales at retail," "use," "storage," and "consumption" include the sale, use, storage, or consumption of all tangible advertising materials imported or caused to be imported into this state. Tangible advertising material includes displays, display containers, brochures, catalogs, price lists, point-of-sale advertising, and technical manuals or any tangible personal property which does not accompany the product to the ultimate consumer.

(c) "Retail sales," "sale at retail," "use," "storage," and "consumption" do not include materials, containers, labels, sacks, or bags intended to be used one time only for packaging tangible personal property for sale or for packaging in the process of providing a service taxable under this part....

REGULATORY AUTHORITY:

The following provisions of the Florida Administrative Code (F.A.C.), found in Rule 12A-1.040, F.A.C., are pertinent to the transactions described in your letter:

Sales of Containers, Wrapping and Packing Materials and Related Products.

(1) Items actually accompanying the product sold to the final buyer or ultimate consumer without which delivery of the product is impracticable on account of the character of the contents and for which there is no separate charge are exempt. These items include such things as cans in which canned goods, paints and other commodities are contained, medicine bottles, boxes in which jewelry, candy, suits, dresses and hats are delivered to customers, wrapping paper, paper bags, ice cream cartons and ice cream cones, twine, milk bottle caps, paper discs, meat skewers, etc., crating, packing cases, excelsior, bail bindings, bulkhead materials and the like when used in connection with the packaging for shipment for sale of other tangible personal property where these materials pass to the retailer or ultimate consumer together with the tangible personal property originally containing only directions for use when it accompanies the article sold and where it is impracticable to affix such printed matter to the article sold.

Rule 12A-1.091, F.A.C., states the following in regard to use tax:

(1) The Florida Sales and Use Tax Act imposes a tax on the use, consumption, distribution, and storage for use or consumption in this state of tangible personal property purchased in such manner that the sales tax would not be applicable at the time of purchase.

(2)(a) The use tax applies to the use in this state of tangible personal property purchased outside Florida which would have been subject to the sales tax if purchased from a Florida dealer; provided, however, that it shall be

presumed that tangible personal property used in other states, territories of the United States, or the District of Columbia for six (6) months or longer under conditions which would lawfully give rise to the taxing jurisdiction of another state, territory of the United States, or District of Columbia before being imported into this state was not purchased for use in this state. For purposes of the presumption set forth herein, it shall be necessary only that the tangible personal property was used under conditions which would allow such other state, territory of the United States, or District of Columbia to impose a sales or use tax on the sale or use of that property regardless of whether any such tax was actually imposed or paid.

(b) The rental or lease of tangible personal property which is used or stored in this state shall be taxable without regard to its prior use or tax paid on purchase outside this state.

(3) The provisions of the Florida Sales and Use Tax shall not apply to the use or consumption, or distribution or storage of tangible personal property for use or consumption in this state upon which a like tax equal to or greater than the amount due this state has been lawfully imposed and paid in another state, territory of the United States, or the District of Columbia before use tax payable to this state would otherwise have become due. If the amount of tax so lawfully imposed and paid in another state, territory of the United States, or the District of Columbia is not equal to or greater than the amount of tax imposed by Chapter 212, F.S., then the person from whom the use tax is due shall pay to the Department of Revenue an amount sufficient to make the tax paid in the other state, territory of the United States, or the District of Columbia and in this state equal to the amount imposed by that Chapter.

(4) The use tax does not apply to any property of which the retail sale is specifically exempt from payment of the Florida sales tax. The two taxes, sales and use, stand as

complements to each other, and taken together provide a uniform tax upon either the sale at retail or the use of all tangible personal property....

We point out that an agency's administrative interpretation of a statute by rule has been accorded great deference by the courts, and will not be overturned unless the agency's interpretation of the statutes is clearly erroneous; reviewing court will defer to any interpretation within the range of possible interpretation. See Pershing Industries v. Department of Banking, 591 So.2d 991, 993 (Fla. 1 DCA 1991); Eager v. Florida Keys Aqueduct Authority, 580 So.2d 771 (Fla. 3 DCA 1991); Natelson v. Department of Ins.; 454 So.2d 31 (Fla. 1 DCA 1984); State ex rel. Szabo Food Serv., Inc. of N.C. v. Dickinson, 286 So.2d 529 (Fla. 1973), reh. den. Jan. 9, 1974.

CONCLUSION OF LAW

Under the circumstances you have outlined, the retailer would not be providing packaging for sale of tangible personal property for which the sale of the products would be impracticable. It therefore, follows under the statute and rule that the retailer would owe use tax on its cost of the wrapping paper and boxes utilized in the gift wrapped merchandise.

This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of Section 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the

Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

Leola B. Carter
Senior Tax Specialist

Control #25904