Could a pallet seller accept an exemption certificate when manufacturers bought wooden pallets to ship their manufactured products?

Plain-English summary

The Comptroller allowed the pallet seller to accept an exemption certificate from a manufacturer that used wooden pallets to ship its manufactured products.

The result did not change when the manufacturer instructed the seller to deliver the pallets directly to a third party's distribution center, as long as the manufacturer paid for and used the pallets in the described way.

The letter distinguished manufacturers from other purchasers. Repackers, produce shippers who were not original producers, wholesalers, retailers, and service providers generally had to pay tax on wrapping and packaging materials, including pallets.

What this means for you

Pallet and packaging sellers

Document the buyer's status and use before accepting an exemption certificate. The ruling tied the exemption to a manufacturer using the pallets for its manufactured goods, not merely to the fact that the pallets were used for shipping.

Manufacturers

Direct delivery to a third-party distribution center did not defeat the exemption on the facts described because the manufacturer bought the pallets for its own manufactured products.

Common questions

Could the pallet seller accept an exemption certificate from the manufacturer? Yes.

Did direct shipment to a third-party distribution center make the pallets taxable? No, where the manufacturer paid for the pallets and used them for its manufactured items.

Did the same exemption apply to wholesalers and retailers? Generally no. The letter said those purchasers generally had to pay tax on packaging materials.

Citations and references

• 34 Tex. Admin. Code Rule 3.314(b)(1) (manufacturer packaging exemption)
• 34 Tex. Admin. Code Rule 3.314(c) (packaging purchases by nonmanufacturers)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1157A03

Original ruling text

January 30, 1992

Dear ****:

I apologize for the delay in responding to your letter. As I understand
it, your company sells wooden shipping pallets. As we discussed on the
telephone, your customers are typically manufacturers who place their
manufactured items on the pallets prior to shipping. The manufacturers may
direct you to ship the pallets directly to a distribution center belonging
to a third party, but the manufacturer pays for the pallets.

You may accept an exemption certificate instead of collecting tax from a
manufacturer who makes this use of your pallets. See enclosed Rule 3.314
(b)(1), which essentially describes the same type of transaction you have
described.

If you sell pallets to a person other than a manufacturer, then the
exemption does not apply. For example, repackers, produce shippers (who are
not original producers), wholesalers, retailers, and service providers are
generally required to pay tax on wrapping and packaging materials, including
pallets. See Rule 3.314 (c).

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further questions, feel
free to write or call me at 1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration Division