Could an aircraft-parts dealer buy required preservation and packaging supplies tax free because it held U.S. military contracts?

Plain-English summary

The Comptroller said an aircraft-parts company had to pay sales tax on wrapping and packaging supplies it used for parts made by a separate subcontracted manufacturer. For tax purposes, the company was acting as a distributor or dealer, not as the manufacturer of those parts.

The company's U.S. Government military contracts and their preservation and packaging requirements did not change the answer. Packaging bought for surplus aircraft parts that the company sold as a dealer was taxable as well.

What this means for you

The ruling drew the line by business activity. Manufacturers and processors retained an exemption for materials used to wrap products they manufactured or processed for sale, while dealers and distributors owed tax on packaging they added to goods bought for resale. A contract requiring special packaging did not turn the dealer into the manufacturer.

Common questions

Did the military contract make the packaging exempt? No. The letter says the contract and its packaging requirements were not controlling.

Why was the company treated as a dealer or distributor? It subcontracted manufacturing to a separate legal entity and also dealt in surplus aircraft parts.

Would a manufacturer receive different treatment? The letter says manufacturers and processors retained the exemption for packaging used on products they manufactured or processed for sale.

Citations and references

• House Bill 11 — wrapping-and-packaging law change discussed in the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1132F09

Original ruling text

September 30, 1991

Dear ***:

Thank you for your recent letter regarding House Bill 11 and the
repeal of the wrapping and packaging exemption.

The taxability of ***'s wrapping and packaging is not
determined by the fact that ** has U.S. Government military
contracts. The preservation and packaging requirements of the
contracts cannot be a consideration; the taxability of the wrapping
and packaging supplies will be determined by the activity
**** performs.

Under the Comptroller's interpretation of H.B. 11, manufacturers
and processors will be allowed to retain their exemption for
wrapping and packaging materials used to wrap or package the
product being manufactured or processed for sale.

Distributors and dealers, purchasing from manufacturers and
processors for resale, will be required to pay tax on the wrapping
and packaging materials they use to package the items purchased
for resale.

You state in your letter that *** subcontracts the manufacture
of the aircraft parts. If the manufacturer of the parts is a
separate legal entity, ***** will be considered, for tax
purposes, to be a distributor or dealer and will be required to
pay sales tax on the purchase of its wrapping and packaging supplies.

You also state that *** is considered a dealer in surplus
aircraft parts. The packaging materials purchased by *****
to package the surplus parts would also be taxable.

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

If you have any questions or need more information, please let us
know.

Sincerely,

Lucy Glover
Manager, Tax Administration Division