Are a wholesaler's gummed labels — some on shipping cartons, some price labels on the product — taxable when the wholesaler buys them?

Plain-English summary

Trans World Music Corporation of Latham, New York, is a wholesaler that buys various gummed labels:

• Carton labels — affixed to the inside or outside of the cartons shipped to customers: address labels and labels reading "Defective," "Hold For Special Sale," "Special Order," and "Re-Bag."
• Product ("Our Price") labels — affixed to the product itself to show the type of product and its retail selling price.

It asked whether either type is subject to sales tax when it buys them.

The Department ruled neither is taxable — but for two different reasons.

• New York taxes receipts from retail sales of tangible personal property under Tax Law § 1105(a).
• Carton labels are exempt packaging. Tax Law § 1115(a)(19) exempts cartons, containers, wrapping and packaging materials and supplies used by a vendor to package property for sale and actually transferred to the purchaser. The regulation, 20 NYCRR 528.20(b), lists gummed labels "actually transferred with the product to the purchaser" as packaging material. The carton labels qualify.
• Product price labels are exempt for resale. The "Our Price" labels affixed to the product are not packaging. But they come within the resale exclusion in § 1101(b)(4) because they are resold "as a physical component part of tangible personal property." Their purchase is not taxable, provided Trans World gives its supplier a completed resale certificate (Form ST-120).

What this means for you

Two different exemptions can cover items that look the same. Gummed labels are all "labels," but New York sorts them by function. Labels that go on the packaging and travel to the customer are exempt as packaging materials. Labels that become part of the product you sell are exempt as purchases for resale. Either way you don't pay tax buying them — but the paperwork differs.

Packaging materials must actually be transferred to the customer. The § 1115(a)(19) exemption (and 20 NYCRR 528.20(b)) turns on the material being physically transferred with the product to the purchaser. Packaging you keep and reuse in your own operation isn't covered.

Use a resale certificate for component labels. For labels that are resold as a physical component of the product (like the price labels here), give your supplier a completed Form ST-120 so the supplier doesn't charge you tax.

Common questions

Q: Are the shipping-carton labels taxable when I buy them?
A: No. Address labels and handling labels affixed to the cartons that go to your customer are exempt packaging materials under § 1115(a)(19), because gummed labels actually transferred with the product are packaging material (20 NYCRR 528.20(b)).

Q: What about the price labels I stick right on the product?
A: Those aren't packaging, but they're still exempt — they're resold as a physical component of the product under the resale exclusion (§ 1101(b)(4)). Give your supplier a resale certificate (Form ST-120).

Q: What paperwork do I need?
A: For the resale-based labels, a completed Form ST-120 given to your supplier. The packaging labels are exempt under § 1115(a)(19) as long as they're actually transferred to the customer with the product.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1115(a)(19) — exempts cartons, containers, wrapping and packaging materials and supplies used to package property for sale and actually transferred to the purchaser
• Tax Law § 1101(b)(4) — excludes from taxable retail sales property purchased for resale, including as a physical component part of tangible personal property
• 20 NYCRR 528.20(b) — defines "packaging material" to include gummed labels "actually transferred with the product to the purchaser," and defines "actually transferred"

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_52s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(52)S
Sales Tax
April 14, 1981

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

PETITION NO. S801027D

On October 27, 1980 a Petition for Advisory Opinion was received from Trans
World Music Corporation, 874 Albany-Shaker Road, Latham, New York 12110.
The issue raised is whether receipts from the sale of certain gummed
labels, which are affixed either to the packaging of Petitioner's product or to
the product itself, are subject to the sales tax imposed under Article 28 of the
Tax Law, when such labels are purchased by Petitioner.
Petitioner, a wholesaler, purchases various gummed labels, some of which
are affixed to either the inside or outside of the cartons shipped to its
customers, and others of which are affixed to the product to indicate the type
of product and the retail selling price of the product. The former includes
address labels and labels with the following notations: "Defective," "Hold For
Special Sale," "Special Order," and "Re-Bag."
Section 1105(a) of the Tax Law, contained in Article 28 thereof, imposes
a tax on the receipts from retail sales of tangible personal property. Section
1115(a)(19) of the Tax Law exempts from such tax "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." Section
1101(b)(4) of the Tax Law excludes from the definition of retail sales the
proceeds of which are subject to the sales tax sales of tangible personal
property for resale either as such or as a physical component part of tangible
personal property.
The Sales and Use Tax Regulations, in defining the term "packaging
material," provide that "Packaging material includes, but is not limited
to:...boxes...cartons...gummed labels...actually transferred with the product to
the purchaser," and provides that "'actually transferred'" means that the
packaging material is physically transferred to the purchaser, for whatever
disposition the purchaser wishes." 20 NYCRR 528.20(b).
Purchases by Petitioner of the labels which are affixed to either the
inside or outside of the cartons shipped to its customer are eligible for the tax
exemption contained in section 1115(a)(l9) of the Tax Law. The "Our Price" labels
which Petitioner purchases and affixes to the product do not constitute
packaging. However, they do come within the re-sale exclusion contained in
section 1101(b)(4) of the Tax Law, inasmuch as they are re-sold as a "physical
component part of tangible personal property." Purchases of such labels are
therefore not subject to tax where Petitioner supplied the vendor with a
completed resale certificate (Form ST-120).

DATED: February 25, 1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR