May an Illinois manufacturer buy pallets, containers, wrapping, and packing materials tax-free for resale when ownership passes to customers with the shipped product?

Plain-English summary

Pallets and qualifying containers, wrapping, and packing materials could be purchased tax-free for resale when the manufacturer transferred ownership of them to the customer with the shipped product.

The requester used drums, totes, pails, pallets, banding, clips, wrapping, cardboard corners, wooden bracing, slip sheets, and other materials to secure automotive chemicals for shipment. Customers received ownership of the shipping materials without a separately itemized charge.

Container-resale rule

A seller's sale of containers to a purchaser was a sale for resale when the purchaser transferred the container to its customer together with the tangible personal property contained in it.

The purchaser supported the resale treatment with a certificate of resale under 86 Ill. Adm. Code 130.1405.

The regulation's definition included containers, wrapping and packing materials, bags, twine, container handles, wrapping paper, tape, cellophane, boxes, bottles, drums, cartons, sacks, and other containing or wrapping materials.

Pallets expressly qualified

The Department specifically said pallets fell within the container definition and could be purchased for resale if ownership passed to the customer.

The response did not separately classify each slip sheet, brace, band, or clip. Those items would need to fit the regulation's definition and transfer requirements.

What this means for you

Manufacturers shipping products

Document that ownership of the pallet or packaging passes with the product. Reusable status or lack of a separate customer charge did not replace the ownership-transfer requirement.

Purchasers claiming resale

Give the supplier a properly completed certificate of resale and evaluate less-obvious shipping materials under the regulation's functional definition.

Common questions

Q: Are pallets included?
A: Yes, when ownership passes to the customer with the product.

Q: Must the customer be separately billed for the pallet?
A: The GIL focuses on ownership transfer, not a separate itemized charge.

Q: Did Illinois expressly approve every bracing and slip-sheet item?
A: No. It specifically approved pallets and gave the broader regulatory definition.

Citations and references

• 86 Ill. Adm. Code 130.2070 — containers, wrapping, packing materials, and pallets.
• 86 Ill. Adm. Code 130.1405 — certificates of resale.
• 35 ILCS 105/3 and 86 Ill. Adm. Code 150.130 — Use Tax if tax is not collected.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0083.pdf

Original ruling text

ST 11-0083-GIL 09/23/2011 MISCELLANEOUS
This letter discusses the Department’s regulation for sales of containers, wrapping and packing
materials and related products as set forth at 86 Ill. Adm. Code 130.2070. (This is a GIL.)

September 23, 2011

Dear Sir or Madam:
This letter is in response to your letter dated July 14, 2011, in which you request information.
The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
ABC hereby requests a Private Letter Ruling regarding the application of Illinois’
Retailers' Occupation Tax to its purchases of pallets, shipping containers for products,
slip sheets and assorted packing, wrapping, and bracing materials.
Statement of facts:
ABC is an automotive chemical manufacturer that delivers liquid products to both
domestic and international customers. As virtually all of ABC’s customers either use
ABC’s products to add to their own products in their manufacturing processes or resell
the products they purchase from ABC and since said customers have issued sales and
use tax exemption certificates to ABC, virtually all sales are exempt from the Retailers'
Occupation Tax.
Although ABC uses bulk truck shipments to deliver many finished products to
customers, some of ABC’s finished fluid products are packed into drums, totes, and
small closed pails for shipping. Shipments of drums and pails are secured onto pallets,
and various packaging materials including steel banding and crimp clips, various
wrapping materials, protective cardboard corners, wooden bracing, slip sheets, and
other consumable materials used in the shipping industry to secure loads within
shipping containers and trailer trucks are used to secure the containers to the pallets
and/or to secure the palletized goods or totes into container trucks.

Ownership of all containers, packaging, wrappings, bracing materials, slip sheets, and
pallets are transferred to ABC’s customers, and said items are not directly billed to
customers nor are deposits for such materials sought or collected. Instead, customers
are billed according to the volume of fluid product included in the shipment. While
pallets are reusable; none of the packaging, wrapping, or bracing materials are believed
to be reusable. ABC believes that many containers are scrapped although some may
[sic] disposed of or sold to be cleaned and resold.
Contracts, licenses, other relevant documents:
None.
Tax periods at issue, statement whether there is ongoing audit or litigation:
The tax periods at issue at those periods not yet closed due to statutes of limitations, or
approximately 2009, 2010, 2011 and all future tax periods. There is no ongoing audit or
litigation between ABC and the Illinois Department of Revenue.
Statement whether the IDOR has previously ruled on this matter:
To the best knowledge and belief of ABC, the IDOR has not previously ruled on this
matter or any similar matter for ABC.
Authoritative statements in support of the taxpayer’s position:
ABC believes that its purchases of containers, packaging materials, wrappings, bracing
materials, slip sheets, and pallets should be exempt from Illinois’ Retailers' Occupation
Tax and cites the following authoritative references in support.
86 Illinois Administrative Code, Chapter 1, Section 130.2070 (b) (1) states:
Sellers of containers to purchasers who sell tangible personal property
contained in such containers to others are deemed to make sales of such
containers to purchasers for purposes of resale, the receipts from which
sales are not subject to the Retailers' Occupation Tax, if the purchasers of
such containers transfer the ownership of the containers to their
customers together with the ownership of the tangible personal property
contained in such containers.
Section 130.2070 (a) provides a definition of containers as follows:
When used in this Section, the term ‘containers’ includes all containers,
wrapping and packing materials, bags, twines, container handles,
wrapping papers, gummed tapes, cellophane, boxes, bottles, drums,
cartons, sacks or other packing, packaging, containing and wrapping
materials in which tangible personal property may be contained.
As previously explained, with each sale, ABC does indeed transfer the ownership of the
containers, packaging materials, wrapping materials, bracing materials, slip sheets, and
pallets used to ship its finished products without an itemized charge for said materials.
While these aforementioned materials used not [sic] to directly contain products but to

secure them to other shipping materials or within a container truck are not specifically
listed as qualifying for exemption from Retailers' Occupation Tax, such materials are
intimately related to the container materials included in the definition found in Section
130.2070(a) as they are as necessary for safely transporting the products placed within
the actual vessels holding the fluid products as are the vessels themselves. These
materials are, in effect, additional wrapping and packaging materials, both in their
nature and function as materials used to secure tangible personal property and prepare
it for shipment.

Statement of Authorities contrary to taxpayer’s position:
86 Illinois Administrative Code, Chapter 1, Section 130.2070 does not specifically
include pallets, slip sheets, or consumable wrapping, packaging, and bracing materials
used to secure containers holding tangible personal property onto pallets and pallets or
totes within a container truck in its definition of containers.
No other contrary authoritative sources are known.
Trade Secrets:
No trade secrets are contained within this letter, however, ABC requests that its name,
address, and references to the specific industry in which it is engaged be redacted from
any public release of a Private Letter Ruling.
Conclusion
From the authoritative references above, ABC believes that its purchases of pallets and
containers as well as packaging materials, slip sheets, wrappings, and consumable
packing and bracing materials used to secure containers holding tangible personal
property onto pallets and palletized loads or totes securely within a container truck are
exempt from Illinois’ Retailers' Occupation Tax. ABC, hereby, respectfully requests a
Private Letter Ruling from the IDOR to this effect.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department declines to issue a Private Letter Ruling. The regulations are
clear on the issue contained in your request. 86 Ill. Adm. Code 1200.110(a)(3)(D).
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. See 86 Ill.
Adm. Code 130.101. The tax is measured by the seller's gross receipts from retail sales made in the
course of such business. In Illinois, Use Tax is imposed on the privilege of using, in this State, any
kind of tangible personal property that is purchased anywhere at retail from a retailer. See 35 ILCS
105/3; 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as "sales" tax in
Illinois. If the purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the
time of purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse

themselves for their Retailers' Occupation Tax liability incurred on those sales. If the retailer does not
collect the Use Tax from the purchaser for remittance to the Department, the purchaser is responsible
for remitting the Use Tax directly to the Department. See 86 Ill. Adm. Code 150.130.
The Department’s regulation governing “Sales of Containers, Wrapping and Packing Materials
and Related Products,” is set forth at 86 Ill. Adm. Code 130.2070. The sale of tangible personal
property for the purpose of resale is not taxable so long as the purchaser provides the seller with a
Certificate of Resale in accordance with 86 Ill. Adm. Code 130.1405. Please note that sellers of
containers to purchasers who sell tangible personal property contained in such containers to others
are deemed to make sales of such containers to purchasers for purposes of resale, the receipts from
which sales are not subject to the Retailers' Occupation Tax, if the purchasers of such containers
transfer the ownership of the containers to their customers together with the ownership of the tangible
personal property contained in such containers.
“Containers" includes all containers, wrapping and packing materials, bags, twines, container
handles, wrapping papers, gummed tapes, cellophane, boxes, bottles, drums, cartons, sacks or other
packing, packaging, containing and wrapping materials in which tangible personal property may be
contained. 86 Ill. Adm. Code 130.2070(a). Pallets fall within the definition of “container”, as
evidenced by the example provided in the Department’s regulations, and may be purchased for
resale if ownership of the pallets also passes to the purchaser. See Section 130.2070(b)(2).
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk