Were perforated picking tickets taxable when they combined shipping labels, a packing slip, and an internal order-gathering section?

Plain-English summary

The taxpayer did not owe Tennessee sales or use tax on the perforated picking tickets. Each ticket was one physical article divided into four parts: two shipping labels, a packing slip sent with the order, and an internal section used to gather the order.

The shipping labels fit the cited statutory exclusion for labels used to package tangible personal property. The packing slip also qualified under the cited rule for printed matter that actually accompanied the shipped product without a separate charge.

The remaining order-gathering section did not qualify on its own. It stayed inside the taxpayer's warehouse, was neither a label nor shipped with the product, and functioned like an internal invoice. The ruling said that section would be taxable if it were a separate article.

But the perforations did not turn the sections into separate property. Looking at the ticket as a whole, the Department found that its primary purpose was use as shipping labels and a packing slip. That exempt purpose controlled the treatment of the single combined ticket.

What this means for you

Warehouse and fulfillment operators

Under the 1996 law applied here, a multifunction shipping form could remain exempt when its main purpose was to label and accompany the shipped product, even though one section stayed behind for internal processing.

Printers and form vendors

The ruling turned on how the customer used the complete form. The same internal picking or invoice section, sold as a separate article, would not have qualified for the packaging-material treatment described here.

Accountants and tax professionals

The Department treated the perforated ticket as one article and applied a primary-purpose analysis. Confirm the current packaging-material statute and rule before extending the result to modern warehouse documents or labels.

Common questions

Q: Were the two shipping-label sections exempt?
A: Yes. The ruling treated them as labels used for packaging the tangible personal property being sold.

Q: Was the packing-slip section exempt?
A: Yes. It accompanied the customer order and fit the cited rule's treatment of qualifying printed matter.

Q: Was the internal picking section exempt by itself? A: No. It did not accompany the product and functioned as an internal order-gathering document.

Q: Why was the whole ticket still exempt?
A: The ticket was one article of tangible personal property, and its primary purpose was use as shipping labels and a packing slip.

Q: Did it matter that the form was perforated?
A: No. The ruling still treated the complete ticket as a single article.

Q: Can another warehouse rely on this letter ruling? A: No. It binds the Department only for the addressed taxpayer and facts.

Citations and references

• Tenn. Code Ann. § 67-6-102(24)(A) — former definition of a sale.
• Tenn. Code Ann. § 67-6-102(30)(A) — former definition of use.
• Tenn. Code Ann. § 67-6-102(23)(E)(ii) — former packaging-material exclusion.
• Tenn. Comp. R. & Regs. 1320-5-1-.11 — items accompanying products without separate charge.
• Shoppers Guide Publishing Co. v. Woods, 547 S.W.2d 561 (Tenn. 1977) — cited for the presumption that Tennessee sales or use of tangible personal property is taxable unless expressly exempted.

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/96-38.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING #96- 38

WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer being addressed in the ruling. This presentation of the ruling in a redacted form is informational only. Rulings are made in response to particular facts presented and are not intended necessarily as statements of Department policy.

Whether picking tickets are subject to Tennessee sales and use tax.

SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of existing facts furnished to the department by the taxpayer. The rulings herein are binding upon the department and are applicable only to the individual taxpayer being addressed. This letter ruling may be revoked or modified by the commissioner at any time. Such revocation or modification shall be effective retroactively unless the following conditions are met, in which case the revocation shall be prospective only: (A) The taxpayer must not have misstated or omitted material facts involved in the transaction; (B) Facts that develop later must not be materially different from the facts upon which the ruling was based; (C) The applicable law must not have been changed or amended; (D) The ruling must have been issued originally with respect to a prospective or proposed transaction; and (E) The taxpayer directly involved must have acted in good faith in relying upon the ruling and a retroactive revocation of the ruling must inure to his detriment.

FACTS
[THE TAXPAYER] orders picking tickets (“tickets”) to be printed from a local vendor. The vendor prints the tickets and stores them at his location until [THE TAXPAYER]

requests delivery. [THE TAXPAYER] requests delivery of the tickets to its warehouse in Tennessee and also to its other warehouses outside of Tennessee. Delivery is made by the vendor. The ticket serves as a shipping label and packing slip. The form is perforated into four parts: two shipping labels, a packing slip, and the remainder, not shipped with the product, is the actual ticket used by [THE TAXPAYER] to gather the order.

QUESTION
Whether [THE TAXPAYER] is subject to sales and use tax for the tickets.

RULING
[THE TAXPAYER] will not be subject to sales and use tax for the tickets.

ANALYSIS
Tenn. Code Ann. § 67-6-102(24)(A) defines a “sale” as any transfer of title or possession, or both, exchange, barter, leases or rental . . .in any manner or by any means whatsoever of tangible personal property for a consideration . . .” “Use” is defined as “the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.” Tenn. Code Ann. § 67-6-102(30)(A). It is the declared legislative intent that every sale or use of tangible personal property in Tennessee is subject to the sales tax unless expressly exempted. Shoppers Guide Publishing Co. v. Woods, 547 S.W.2d 561 (Tenn. 1977). An exclusion from the sales tax is found in Tenn. Code Ann. 67-6-102(23)(E)(ii), which does not deem as a taxable sale the purchase of “[m]aterials, containers, labels, sacks, bags or bottles used for packaging tangible personal property when such property is either sold therein directly to the consumer or when such use is incidental to the sale of such property for resale” (Emph. added). Similarly, TENN. COMP. R. & REGS. 1320-5-1-.11 states that
[i]tems actually accompanying the product sold or shipped, without which the delivery of the product is impracticable on account of the character of the contents, and for which there is no separate charge, are not subject to Sales or Use Tax. These items include such things as containers, packing materials, labels or name plates affixed to products manufactured, and printed matter containing only directions for use.

(Emph. added).
[THE TAXPAYER] purchases the tickets to use for several purposes. The tickets are perforated, but nonetheless are a single article of tangible personal property for consideration of whether the tickets are taxable. Two portions of the tickets are labels which are excluded from sales tax. Tenn. Code Ann. § 67-6-102(23) (E)(ii). Another part is a packing slip which is included in the order sent to the customer, and is also exempt . TENN. COMP. R. & REGS. 1320-5-1-.11. Clearly, both the shipping labels and packing slip sections, without consideration of the remainder of the ticket, are within these exemptions and are not taxable. The portion of the ticket which is not shipped with the order is used internally by [THE TAXPAYER] to gather the order. This portion of the ticket does not fit within the exemption for packing materials because it is neither a label nor shipped with the product. There is no applicable exemption from sales or use tax for tangible personal property used by the dealer as, essentially, an internal invoice. Accordingly, if this portion of the ticket were a separate article of tangible personal property, it would not be exempt from tax. Since the ticket is one article of property whose primary purpose, based on the facts as represented, is its use as a shipping label and packing slip, the tickets are exempt from sales and use tax.

Caroline R. Krivacka
Tax Counsel

APPROVED: Ruth E. Johnson
Commissioner
DATE:

12/23/96