Are a soft-drink bottler's reusable trays and dispenser tanks, transferred to wholesalers on a deposit-and-return basis, taxable?

Plain-English summary

Clinton's Ditch Co-op Co., Inc., a soft-drink bottler, uses two kinds of reusable items to get its product to market:

• Plastic trays that hold its 2-liter bottles for retail display (useful life over three years, cost about $1.85–$2.15 each), for which it charges a $2.00 refundable deposit; and
• Dispenser tanks of pre-mix soft drink delivered to restaurants (useful life over three years, cost about $34 each), for which it charges a $33.00 refundable deposit.

There is no written agreement requiring wholesalers to return the trays or tanks — only an oral understanding that they'll return them to get their deposits back. If a wholesaler keeps an item, it is invoiced at Clinton's Ditch's cost, less the deposit already held. The bottler asked whether its purchases and transfers of these items are taxable.

The Department held they are exempt.

• Packaging exemption. Under § 1115(a)(19) and 20 NYCRR § 528.20, cartons, containers, and packaging materials that a vendor uses to package tangible personal property for sale, and "actually transfers" to the purchaser, are exempt. The regulation lists trays-type items and gives the example of a returnable soda bottle — returnable for a deposit refund or disposable otherwise — as "actually transferred" and buyable without tax.
• Deposit-and-return is still a sale. Citing Nehi Bottling v. Gallman, where the court found Nehi sold its bottles to distributors even though its contract required their return, the Department treated Clinton's Ditch the same way — and here there was only an oral, non-binding return understanding.
• Result. The bottler may buy the trays and tanks for resale without paying tax under § 1101(b)(4), and it is not required to collect sales tax when it transfers them to wholesalers.

What this means for you

Reusable, returnable packaging can still be tax-free "packaging materials"

You don't lose the § 1115(a)(19) packaging exemption just because your containers are durable and come back to you. What matters is that the packaging is actually transferred to the buyer to do with as they wish — even if a deposit-and-return cycle usually brings it home. Trays, tanks, kegs, pallets, and returnable bottles can all qualify.

The deposit doesn't turn the transfer into a taxable sale of the container

Charging a refundable deposit — and even invoicing the buyer for the item if it isn't returned — doesn't defeat the exemption. The container is transferred as packaging for the product being sold; the deposit is a mechanism to encourage return, not a separate taxable sale of the tray or tank.

Buy the packaging for resale, don't pay tax on it

Because the bottler transfers the trays and tanks to its customers, it is buying them for resale and can give its supplier a resale certificate rather than paying tax on them. Don't pay sales tax on packaging you will pass along with the product.

Common questions

Q: Are reusable display trays and dispenser tanks taxable when I charge a deposit?
A: No. They are exempt packaging materials under § 1115(a)(19) because they are actually transferred to the customer, and the deposit-and-return arrangement is still a sale.

Q: Does a return agreement defeat the exemption?
A: No. Even a written return requirement didn't stop the transfer from being a sale in Nehi Bottling v. Gallman; here the return understanding was only oral.

Q: Can I buy this packaging without paying sales tax?
A: Yes. Because you transfer it to your customers with the product, you may purchase it for resale under § 1101(b)(4) using a resale certificate.

Q: Do I collect tax on the deposit or the item?
A: No. You are not required to collect sales tax on the trays and tanks you transfer to your wholesalers.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(19) — exemption for cartons, containers, and wrapping and packaging materials actually transferred to the purchaser
• Tax Law § 1101(b)(4) — purchase for resale
• 20 NYCRR § 528.20 — cartons, containers, and packaging materials (definitions; returnable-bottle example)

Cited authority:

• Nehi Bottling v. Gallman, 39 AD2d 256, aff'd 34 NY2d 808

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a90_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (38)S
Sales Tax
July 24, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900417C

On April 17, 1990 a Petition for Advisory Opinion was received from Clinton's Ditch Co-op
Co., Inc., P.O. Box 477, Pardee Road, Cicero, New York 13039.
The issue raised by Petitioner, Clinton's Ditch Co-op Co. Inc., is whether its purchases and
sales of certain packaging materials are subject to sales tax.
Petitioner purchases plastic trays in which it sells all of its 2 Liter product. The trays have a
useful life of over three years. The cost of the plastic trays to the Petitioner vary from $1.85 to $2.15
each depending on the quantity ordered and market conditions. Petitioner charges a $2.00 deposit
for each plastic tray. The tray remains with the product for display in most retail stores. When the
product is sold by the retailer, he returns the tray to the wholesaler who returns it to the Petitioner.
For each return the $2.00 deposit is refunded. The tray is then refilled with filled plastic bottles and
the cycle continues.
Petitioner also sells pre-mix soft drinks in tanks that are delivered by the wholesaler to
restaurants and attached to dispensing equipment. The tanks have a useful life of over three years.
Petitioner charges a $33.00 deposit to its wholesalers. The cost of the tanks to the Petitioner are
currently $34.00 each. From time to time the deposit is adjusted to reflect any change in the cost of
the tanks. When the tanks are returned to Petitioner for refilling, Petitioner refunds the deposit.
There is no written agreement between the Petitioner and its wholesalers requiring them to
return the trays and tanks, although there is an oral agreement that they will return them if they want
their deposits to be refunded. If a wholesaler does not return either the trays or the tanks they are
invoiced for them at Petitioner's cost by the Petitioner. Since the Petitioner holds the deposits, the
wholesaler is required to pay only the difference between the cost of the item and the amount of the
deposit. The amount to be paid is generally a small amount since the amounts of the deposit are very
close to the cost of the items.
Section 1115(a)(19) of the Tax Law provides that:
(a) Receipts from the following shall be exempt from the tax on retail
sales imposed under subdivision (a) of section eleven hundred five
and the compensating use tax imposed under section eleven hundred
ten:. . .
(19) 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,

-2­
TSB-A-90 (38)S
Sales Tax
July 24, 1990

and actually transferred by the vendor to the purchaser.
Section 528.20 of the Sales and Use Tax Regulations provides in part:
Cartons, containers, and wrapping and packaging materials and supplies. [Tax Law,
§1115(a)(19)] (a) Exemption.
(1) The sale of 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, is exempt from sales and use tax. . . .
(b) Definitions. (1) Packaging material includes, but is not limited to: bags,
barrels, baskets, binding, bottles, boxes, cans, carboys, cartons, cellophane, coating
and preservative materials, cores, crates, cylinders, drums, excelsior, glue, gummed
labels, gummed tape, kegs, lumber used for blocking, pails, pallets, reels, sacks,
spools, staples, strapping, string, tape, twine, wax paper and wrapping paper actually
transferred with the product to the purchaser.
(2) The term vendor in this section refers to any person who sells tangible
personal property whether manufacturer, wholesaler, retailer, processor or assembler.
(3) The term purchaser in this section refers to any person purchasing
tangible personal property from a vendor, whether or not he is the ultimate consumer.
(4) Actually transferred means that the packaging material is physically
transferred to the purchaser, for whatever disposition the purchaser wishes.
Example 1:

A returnable soda bottle may be returned for a refund of
deposit or disposed of otherwise. Such a bottle is actually
transferred to the purchaser and may be purchased without
payment of tax. . . .

Petitioner's transfer of the trays and tanks to its customers constitute exempt sales of
containers and packaging materials in accordance with the meaning and intent of Section 1115(a)(19)
of the Tax Law and Sections 528.20(a)(1) and (b) of the Sales and Use Tax Regulations since they
were actually transferred to the customer for whatever disposition the customer wishes.
It should be noted that in Nehi Bottling v Gallman, 39 AD 2d 256, aff'd 34 NY 2d 808 the
Court held that Nehi sold the bottles to its distributor even though Nehi's contract with its distributor
contained a provision requiring the return of the bottles to Nehi. Petitioner is operating in
substantially the same manner as in Nehi in that although there is an oral agreement between the
wholesaler and the Petitioner to return the trays and tanks, there is no requirement to do so.

-3­
TSB-A-90 (38)S
Sales Tax
July 24, 1990

Accordingly, Petitioner may purchase the plastic trays and soft drink tanks for resale without
the payment of sales tax in accordance with Section 1101(b)(4) of the Tax Law and is not required
to collect sales tax on the trays and tanks it transfers to its wholesalers.

DATED: July 24, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.