Were plastic bags, corrugated cartons, and fiber drums supplied to medical-waste customers exempt as containers used to deliver tangible personal property?

Plain-English summary

South Carolina Private Letter Ruling 88-20 held that plastic bags, corrugated cartons, and fiber drums used in ABC's medical-waste disposal business were subject to sales or use tax.

ABC supplied the containers without a separate charge to hospitals, laboratories, doctors' offices, research centers, and other healthcare facilities. Customers placed infectious, pathological, and biomedical waste in them for ABC to collect, transport, and dispose of.

The container exemption did not apply because ABC was not using the items to package tangible personal property that it sold. ABC was the end user of the containers in providing its waste-disposal service.

ABC's waste-disposal service

ABC collected, transported, and disposed of—or arranged disposal of—infectious, pathological, and biomedical waste from healthcare-related facilities.

Some customer contracts required ABC to supply, without charge and when requested:

• plastic bags;
• corrugated boxes or cartons; and
• fiber drums.

The containers enabled the waste generators to hold the material for ABC's pickup and disposal.

The statutory container exemption

Section 12-35-550(14) exempted wrapping paper, wrapping twine, paper bags, and containers used incident to delivery of tangible personal property.

Regulation 117-174.67 limited that language to containers used incident to the sale and delivery of tangible personal property. It expressly said the exemption was not intended for containers sold to end users or consumers.

Regulation 117-174.79 allowed licensed retailers to buy packaging tax-free when used to package property they sold or shipped. It contrasted qualifying packaging with supplies consumed in operating the retailer's business.

Regulation 117-174.154 defined wrapping paper as paper of the kind merchants customarily used to wrap property sold to the public.

Why ABC was the end user

ABC argued for an exemption because the containers were used in delivering property. The Commission identified the missing element: there was delivery, but no sale of the waste as tangible personal property by ABC.

The exemption prevented tax from being imposed once on packaging and again through the ultimate retail price of the packaged product. That policy did not apply to supplies consumed in a waste-disposal service where ABC did not sell the contained waste.

The Commission therefore treated ABC as the consumer or end user and taxed the container purchases.

What this means for you

Medical and biomedical waste companies

PLR 88-20 treated collection containers as operating supplies used in the disposal service, not tax-exempt packaging for property sold to customers.

Healthcare facilities

The fact that ABC supplied containers without a separate charge did not make them exempt. The tax analysis followed ABC's use of the containers in its service.

Packaging suppliers

The exemption depended on the purchaser using containers incident to a sale and delivery of tangible personal property. Delivery or transport alone was insufficient.

Service businesses

Items transferred to customers during a service can remain taxable supplies when the service provider is the end user and no packaged product is sold.

Readers applying the ruling today

PLR 88-20 applied 1988 container statutes and regulations to medical-waste disposal contracts. Current packaging exemptions, service classifications, bundled charges, resale documentation, waste rules, and container ownership must be checked independently.

Common questions

Q: Were ABC's bags, cartons, and drums exempt?

A: No. The Commission treated ABC as their end user.

Q: Why did the container exemption fail?

A: The containers were not used incident to ABC's sale and delivery of tangible personal property; they were used to collect and transport waste for disposal.

Q: Did supplying the containers free to customers matter?

A: It was part of the stated facts, but it did not change ABC's status as the end user in its service business.

Q: Would packaging used for products sold by a retailer be different?

A: Yes. The cited regulations exempted packaging used incident to shipment or sale of tangible personal property sold by the retailer.

Q: What kinds of customers received the containers?

A: Hospitals, medical testing laboratories, doctors' offices, university research centers, and other healthcare-related facilities.

Q: Can another waste company rely on PLR 88-20?

A: No. The ruling states that it applied only to ABC's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-550(14) (1976) — wrapping and container exemption
• S.C. Code sections 12-35-510 and 12-35-820(2) (1976) — sales and use taxes
• S.C. Code sections 12-35-30 and 12-35-515 — gross proceeds and additional one-percent tax cited in the ruling
• S.C. Regulations 117-174.67, 117-174.79, and 117-174.154 — containers used in sales, packaging, and wrapping paper
• Act No. 176 of 1977 — force of pre-1977 regulations discussed in the ruling
• Gay v. Canada Dry Bottling Co. of Florida, 59 So. 2d 788 — double-taxation rationale for packaging exemptions quoted in the ruling
• Marchant v. Hamilton, 309 S.E.2d 781 (1983); Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E.2d 435 (1966); and Etiwan Fertilizer Company v. South Carolina Tax Commission, 217 S.C. 354, 60 S.E.2d 682 (1950) — administrative-interpretation authorities
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-20.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-20

TO:

ABC, Inc.

SUBJECT:

Containers
(Sales and Use)

REFERENCE:

S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-550(14) (1976)
S.C. Code Ann. Section 12-35-820(2) (1976)
Regulation 117-174.67
Regulation 117-174.79
Regualtion 117-174.154

AUTHORITY:

S.C. Code Section 12-3-170
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for general distribution.

Question:
Are the gross proceeds of sales of plastic bags, corrugated cartons, and fiber drums, which are
supplied to customers of ABC, exempt from sales or use tax [Code Sections 12-35-550(14) and
12-35-820(2)]?
Facts:
ABC, Inc. owns and operates a waste disposal business. As a part of its waste disposal business
it picks up, transports and disposes of, or causes to be disposed of, infectious, pathological and
biomedical waste from hospitals, medical testing laboratories, doctors' offices, university
research centers and other health care related facilities (collectively "waste generators"). ABC
has agreed, in certain of its contracts with waste generators, to supply without charge on a when
asked basis, bags, corrugated boxes and fiber drums to such waste generators. S.C. Code Section
12-35-510 imposes a sales tax "upon every person engaged or continuing within this State in the
business of selling at retail any tangible personal property...., an amount equal to four percent of
the gross proceeds of sales of the business (emphasis added)." Code Section 12-35-515,
effective July 1, 1984, imposes an additional one percent tax.

1

The term "gross proceeds of sales" is defined at Code Section 12-35-30, in part, as "the value
proceeding or accruing from the sale of tangible personal property...."
The gross proceeds of the sales of certain items are exempt from sales tax, as provided at Code
Section 12-35-550. Paragraph (14) of that section exempts, "[t]he gross proceeds of the sale of
wrapping paper, wrapping twine, paper bags and containers for use incident to the delivery of
tangible personal property" (emphasis added).
Regulation 117-174.67 reads:
Under the provisions of Code Section 12-35-550(14), there are exempted from the sales
or use tax, containers for use incident to the delivery of tangible personal property.
This section contemplates the exemption of containers only when used incident to the
sale and delivery of tangible personal property and is not intended to exempt containers
as such to end users or consumers. For example: Sales of canning jars for domestic
consumption are subject to the tax (emphasis added).
Regulation 117-174.79 reads:
Licensed retailers purchase free of sales or use taxes wrapping paper, wrapping twine,
paper bags and containers for use incident to the delivery of tangible personal property
sold by them. They also purchase tax-free materials used in packaging personal property
sold by them. They also purchase tax-free materials used in packaging tangible personal
property for shipment or sale.
The list below while illustrative of items falling within the Rule announced above is not
exhaustive:
Souffle cups, butter chips, paper cups, paper plates, boxes and crates and glazed tissue
used to package articles of food.
It will be seen that items such as straws, napkins, wooden or paper spoons and forks do
not meet the requirements outlined above and, hence, must bear the tax. Such items are
rather in the nature of supplies used or consumed by the retailer in the operation of his or
its business (emphasis added).
Also, Regulation 117-174.154 reads, in part:
The term "wrapping paper" as used in Code Section 12-35-550(14) of the South Carolina
Sales and Use Tax Law, is construed to mean paper of the kind and quality that is
customarily used by merchants as a wrapping for the property which they sell to the
public (emphasis added).
Discussion:
The issue is whether or not purchases of the containers in question qualify for the exemption,
when such containers are not used incident to the sale and delivery of tangible personal property
but used only incident to the delivery of property.
2

In Gay v. Canada Dry Bottling Co. of Florida, 59 So. 2d 788, the Supreme Court of Florida,
stated:
The purpose of exempting from a retail sales tax such intermediate sales of containers
and packaging materials appears to be, as stated in Kroger Grocery and Baking Co. v.
Glander, supra [149 St. 120, 77 N.E. 2d 926]" To avoid double taxation and to prevent
the increase of ultimate sales price to the consumer, for, after all, the consumer pays the
whole tax reflected in the price which he pays for the finished product."
Also, note that Act. No. 176 of 1977 gave "full force and effect of law" to all regulations in place
before January 1, 1977. The referenced regulations fall within that category.
Furthermore, it is well settled that administrative interpretations of statutes by the agency
charged with their administration and not expressly changed by the legislative body are entitled
to great weight. Marchant v. Hamilton, 309 S.E. 2d 781(1983). When, as in this case, the
construction or administrative interpretation of a statute has been applied for a number of years
and has not been changed by the legislature, there is created a strong presumption that such
interpretation or construction is correct. Ryder Truck Lines, Inc. v. South Carolina Tax
Commission, 248 S.C. 148, 149 S.E. 2d 435 (1966); Etiwan Fertilizer Company v. South
Carolina Tax Commission, 217 S.C. 354, 60 SE 2d 682 (1950).
The following is quoted from 68 Am Jur 2d Sales and Use Tax, Section 10:
The sales tax law should be interpreted as the ordinary person reading it would interpret
it. The satute should receive a reasonable interpretation and a practical construction, and
in case of doubt weight will be given to the practical effect which a proposed
construction of the statute will have. Unreasonable or absurd consequences should, if
possible, be avoided. (emphasis added)
In summary, the language found at Code Section 12-35-550(14) and in the referenced regulations
comports with the theory espoused in Gay v. Canada Dry, in that, sales of packaging items are
exempt from taxation when such items are used to ship tangible property, which has been sold.
Such treatment causes the tax to be paid on such items only once.
Conclusion:
It is therefore concluded that sales of the containers in question are subject to the sales or use tax
as ABC is deemed to be the end-user.
SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
Columbia, South Carolina
, 1988
October 26
3