Were foam chemicals and foam-dispensing equipment exempt when customers used them to protect taxable products during shipment?

Plain-English summary

Foam chemicals used as wrapping or packaging to further the sale of taxable items could qualify for the Rule 3.314(a) exemption. A seller did not have to collect tax on a separately stated chemical charge when the customer gave it a properly completed exemption certificate.

The packaging equipment and the complete foam-in-place system did not qualify and were taxable when shipped to Texas customers. Providers of nontaxable services owed tax on both the chemicals and the equipment because they were using them rather than packaging taxable products for sale.

Common questions

Could the foam chemicals be exempt? Yes, when they qualified as packaging supplies used to further the sale of a taxable item.

Was the dispensing equipment exempt? No.

What did the seller need for an exempt chemical sale? A properly completed exemption certificate for the separately stated charge.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L0997C02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

April 13, 1990

Dear *:

Thank you for your letter dated March 29, 1990, concerning the
taxability of foam chemicals and dispensing equipment used to
protect items during shipment.

Wrapping and packaging supplies used to further the sale of a
taxable item qualify for exemption from Texas sales tax. Please
refer to section (a) of the enclosed Rule 3.314 on wrapping and
packing supplies. The foam chemicals ("software") may qualify for
this exemption.

The packaging equipment ("hardware") and "foam-in-place-system" do
not qualify for exemption. ***** must collect Texas sales or
use tax on taxable items shipped to customers in Texas. Please
note that providers of nontaxable services will owe tax on the
"software" as well as the "hardware".

** is not required to collect Texas tax on a separately-
stated charge for "software" if a customer claiming this exemption
issues a properly completed exemption certificate to **.
Rule 3.287 on exemption certificates is enclosed for your reference.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence