Are shipping cartons taxable when a company buys them, packs its own products in them, and ships them out of state where the cartons are discarded and never given to its customers?

Plain-English summary

Cathedral Envelope Co., Inc., produces church collection envelopes. It buys shipping cartons that are delivered to it in Buffalo, packs the envelopes into the cartons, and delivers the cartons to a New York post office. From there the cartons are shipped to various out-of-state post offices, which distribute the envelopes and discard the cartons. The cartons are never given to the company's customers. It asked whether the receipts from its purchase of the shipping cartons are subject to sales tax.

The Department held the cartons are taxable.

• Taxable retail sale, delivered in New York. Section § 1105(a) taxes receipts from retail sales of tangible personal property where delivery occurs in New York. The cartons were delivered to the company by its supplier in New York, so their purchase is a taxable retail sale.
• The printing-industry guideline doesn't apply. The company cited the Industry Guidelines for the printing and mailing industry, but that statement addresses a printer who sells cartons and containers and delivers them to its customer outside New York — not this situation.
• The packaging exemption requires actual transfer to the purchaser. Section § 1115(a)(19) exempts "cartons, containers, and wrapping and packaging materials … for use and consumption by a vendor in packaging or packing tangible personal property for sale, and actually transferred by the vendor to the purchaser." Here the cartons are not actually transferred by the company to the purchasers of the envelopes — they are discarded out of state — so the exemption does not apply.

What this means for you

Packaging is only exempt if it goes to your customer. The § 1115(a)(19) exemption hinges on the packaging being actually transferred to the purchaser of the goods. Packaging you consume or discard yourself — even to ship your own product — doesn't qualify.

Where delivery happens controls the tax. Cartons delivered to you in New York are a taxable New York retail purchase. The rule that lets a printer skip tax when it delivers cartons to a customer outside New York is about a different transaction — a sale to the customer, delivered out of state.

Match the guideline to your facts. The company's mistake was reading a printer-sells-to-out-of-state-customer guideline as covering its own in-state purchase of shipping supplies it never handed to customers.

Common questions

Q: I buy boxes to ship my own product. Are they exempt as packaging?
A: Only if you actually transfer them to your customer with the goods. Boxes you use up or discard yourself are taxable when delivered to you in New York.

Q: My cartons end up out of state — doesn't that make them tax-free?
A: No. What matters is that the supplier delivered them to you in New York (a taxable retail sale) and that you never transferred them to your customers, which defeats the § 1115(a)(19) exemption.

Q: What about the printing-industry guideline on cartons?
A: It covers a printer that sells cartons and delivers them to a customer outside New York. It doesn't apply when you buy cartons for your own packing and delivery in New York.

Citations and references

Statutes:

• Tax Law § 1105(a) — tax on receipts from retail sales of tangible personal property where delivery occurs in New York
• Tax Law § 1115(a)(19) — exemption for cartons, containers and packaging materials used in packaging property for sale and actually transferred by the vendor to the purchaser

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_24s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(24)S
Sales Tax
August 5, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S811203A

On December 3, 1981 a Petition for Advisory Opinion was received from Cathedral Envelope
Co., Inc., 980 Northampton Street, P.O. Box 1293, Buffalo, New York 14240.
The issue raised is whether receipts from the sale of shipping cartons to Petitioner are subject
to sales tax.
Petitioner produces church collection envelopes which it distributes in the following manner.
Petitioner purchases shipping cartons which are delivered to it at its Buffalo location. Petitioner then
packs the church collection envelopes in the shipping cartons, which are delivered to a New York
post office. These cartons are in turn shipped to various post offices outside New York State, for
distribution of their contents by the out-of-state post offices. The shipping cartons are discarded by
the out-of-state post offices and, in any event, are not transferred to Petitioner's customers.
Section 1105(a) of the Tax Law imposes the State sales tax on the receipts from retail sales
of tangible personal property where delivery occurs in New York. Where Petitioner purchases
shipping cartons to be used as described above, such sale constitutes a retail sale the receipts from
which are subject to tax insofar as the cartons are delivered to Petitioner, by its supplier, in New
York. Petitioner's citation of the Industry Guidelines for the printing and mailing industry is not
germane to the present matter. The cited statement merely indicates that where a printer sells any of
the listed items, including cartons and containers, and where delivery is made by the printer to its
customer outside New York, no tax need be collected by the printer from its customer.
Section 1115(a)(19) of the Tax Law provides for an exemption from tax with respect to:
"Cartons, containers, and wrapping and packaging materials and supplies, and components thereof
for use and consumption by a vendor in packaging or packing tangible personal property for sale,
and actually transferred by the vendor to the purchaser." Petitioner's purchases of shipping cartons
are not eligible for this exemption inasmuch the cartons are not actually transferred by Petitioner to
the purchaser of the envelopes.

DATED: July 20, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR