Are a packaging company's sales of custom, customer-branded packaging materials subject to Missouri sales tax?

Subject

Taxability of Branded Packing Materials

Plain-English summary

The Missouri Department of Revenue ruled that a seller of packaging materials must charge Missouri sales tax on its sales of packaging materials -- even packaging materials the seller now prints with a customer's own branding using a newly purchased digital printer.

Applicant's core business is selling packaging materials. Applicant recently bought a digital printer that lets it print a customer's branding directly onto the packaging it sells. Applicant asked whether these sales of packaging materials are subject to Missouri sales tax.

The Department answered yes. Section 144.020.1, RSMo, taxes sellers on retail sales of tangible personal property in Missouri, and Section 144.010.1(13), RSMo, defines a taxable "sale at retail" as a transfer of tangible personal property for use or consumption -- not for resale. Under 12 CSR 10-113.200(1), a sale is taxable if title or ownership of the property transfers in Missouri. So Applicant's sales of packaging materials, branded or not, are taxable as long as title passes to the customer in Missouri.

There is one way out: if the customer is buying the packaging materials for resale (for example, a manufacturer that will use the branded packaging to ship its own product to its own customers, effectively passing the packaging along as part of what it sells), the sale can be exempt under 12 CSR 10-103.220(3)(A). But that exemption depends on paperwork, not just the customer's intent -- the customer must give Applicant a Missouri exemption certificate stating the packaging materials are being purchased for resale, and Applicant must keep a copy of that certificate on file.

What this means for you

Packaging companies adding custom branding/printing services

Adding a digital printer to brand packaging with a customer's logo does not change the sales tax analysis -- printed or unprinted, the packaging material itself is still tangible personal property, and selling it in Missouri is a taxable retail sale by default. Don't assume that customizing a product for a specific customer makes it exempt; what matters is where title transfers and whether the customer is buying for resale.

Customers buying branded packaging to use in their own retail sales

If you are buying branded packaging materials with the intent to resell them (or pass them through as part of a product you sell), you need to give your packaging vendor a Missouri resale exemption certificate before the sale to avoid being charged sales tax. Without that certificate on file with the vendor, the vendor is expected to charge tax on the sale.

Accountants and tax professionals advising sellers of packaging or similar customized goods

This ruling is a reminder that Missouri's resale exemption is documentation-driven: the exemption under 12 CSR 10-103.220(3)(A) turns on the seller obtaining and retaining a valid exemption certificate from the customer, not merely on the seller's belief that the customer intends to resell the item. Advise sellers to collect and retain exemption certificates before treating any sale as exempt, since the ruling places the burden of holding that documentation on the seller (Applicant).

Common questions

Q: Does printing a customer's branding onto packaging materials change whether the sale is taxable?
A: No. The ruling doesn't treat branded packaging any differently from plain packaging materials -- the sale is a retail sale of tangible personal property either way, and it's taxable if title transfers to the customer in Missouri.

Q: When are Applicant's sales of packaging materials exempt from Missouri sales tax?
A: Only if the customer is purchasing the packaging materials for resale. In that case, the customer must give Applicant a Missouri exemption certificate stating the materials are being bought for resale, and Applicant must keep a copy of that certificate.

Q: What happens if the customer says the packaging is for resale but never provides a certificate?
A: The ruling ties the exemption to the exemption certificate itself -- Applicant must maintain a copy of the certificate. Without one, there's no basis in this ruling for treating the sale as exempt.

Q: Where does title have to transfer for the sale to be taxable?
A: In Missouri. Under 12 CSR 10-113.200(1), a sale of tangible personal property is subject to Missouri sales tax if title or ownership of the property transfers in Missouri.

Q: Can another packaging company rely on this ruling for its own sales?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date, and only so long as the facts and the underlying law remain unchanged. A different business should confirm its own facts match those described here and consult a tax professional before relying on this result.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8240

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your communication of March 9, 2023.

The facts as presented in your letter ruling request, as well as communications with you, are summarized as follows:

Applicant sells packaging materials. Applicant has recently purchased a digital printer that will allow Applicant to print customer's branding on the packaging materials.

ISSUE :

Are Applicant's sales of packaging materials in Missouri subject to Missouri sales tax?

RESPONSE :

Yes. Applicant's sales of packaging materials in Missouri are subject to Missouri sales tax.

Section 144.020.1, RSMo, provides "[a] tax is hereby levied and imposed... upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." Section 144.010.1(13), RSMo, defines "Sale at Retail" as "any transfer made by any person engaged in business as defined herein of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale in any form as tangible personal property, for a valuable consideration."

Regulation 12 CSR 10-113.200(1) provides, "a sale of tangible personal property is subject to sales tax if title to or ownership of the property transfers in Missouri..."

Missouri Code of State Regulations 12 CSR 10-103.220(3)(A) provides "[a] taxpayer may purchase tangible personal property or taxable services for resale if the purchase is for subsequent sale at retail."

Applicant's sales of packaging materials is subject to Missouri sales tax as long as title transfers to the customer in Missouri.

Applicant's sales may be exempt from Missouri sales tax if the customer is purchasing the packaging materials for resale.  The customer should provide a Missouri Exemption certificate to Applicant indicating that the packaging materials are being purchased for resale.  Applicant must maintain a copy of the exemption certificate.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel Nathan Jefferson, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford