When were wrapping and packaging supplies exempt for a business handling self-manufactured goods, purchased inventory, bundled components, assembled products, or third-party packaging?

Plain-English summary

Packaging for goods the taxpayer manufactured itself was nontaxable, even when the taxpayer sent the goods from its own manufacturing facility to a separate packaging operation. Packaging was taxable when the taxpayer bought finished goods for sale in its retail stores or bought inventory items to package and market to another retailer or wholesaler.

When the taxpayer merely provided a packaging service for a third-party retailer or wholesaler, it had to collect sales tax on the service charge. Packaging also remained taxable when used to show legally required country-of-origin information, provide instructions on a blister pack, or display required electrical information.

Combining several pieces in one package was taxable if the business merely bundled them. If it assembled the components into a new product, the activity was processing and the package for that new product was nontaxable.

What this means for you

The package's importance to selling or labeling a product did not create exemption by itself. Texas focused on whether the taxpayer manufactured or processed a new product rather than merely buying, bundling, labeling, or packaging existing goods.

Common questions

Was packaging for the taxpayer's own manufactured goods exempt? Yes. What about purchased retail inventory? Taxable. Was third-party packaging service taxable? Yes. Did mandatory labels or instructions make packaging exempt? No. What distinguished an exempt component package? Actual assembly into a new processed product rather than mere bundling.

Citations and references

• The letter does not identify a numbered statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1137D04

Original ruling text

October 7, 1991

Dear ****:

Thank you for your recent letter asking about the taxability of
wrapping and packaging supplies purchased by a packaging operation.
The taxpayer situations, with responses on taxability,
are stated below.

1) The goods may be self-manufactured by taxpayer and shipped to
the packaging operation from a manufacturing facility owned by
the taxpayer which may be located anywhere in the world.

Response: The packaging would not be taxable. Wrapping and packaging
purchased by a manufacturer to wrap or package the product
being manufactured are not taxable.

2) The goods may be purchased by taxpayer for sale in its retail
stores from a third party manufacturer that may be located anywhere
in the world.

Response: The wrapping and packaging is taxable to the taxpayer.

3) Taxpayer may purchase inventory items which it packages and
markets to a third party retailer or wholesaler.

Response: The wrapping and packaging is taxable to the taxpayer.

4) Taxpayer may merely perform a packaging service for a third
party retailer or wholesaler.

Response: Taxpayer should collect sales tax from the third party
retailer or wholesaler on the charge for packaging.

Scenario 1. The product is imported form outside of the U.S. and
law requires that the country of origin be reflected on the product.
Because of the nature of the product this can only be done
on the package.

Response: You are liable for sales tax on the wrapping and packaging.

Scenario 2. The product is not usable without instructions which
are printed on the blister pack.

Response: You are liable for sales tax on the wrapping and packaging.

Scenario 3. The product is made up of several different tangible
pieces which must be packaged as one unit to be sold. Pieces may
come from several different vendors.

Response: If you are simply packaging several pieces together,
the wrapping and packaging will be taxable. If you are taking the
several pieces and assembling them into a new product, this is
processing. The package for the new product you make will not be
taxable.

Scenario 4. The product is electrical and must be labeled with amperage,
etc. in order to be marketable. This must be done on the package.

Response: You are liable for sales tax on the wrapping and packaging.

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, you may call me
toll free at 1- 800-252-5555, extension 3-4633. The regular number
is 512/463-4633.

Sincerely,

Wanda Hutcheson
Tax Administration Division