Are multi-part 'bill of lading' shipping forms, sold to a manufacturer's client, exempt from Texas sales/use tax as packaging supplies?

Plain-English summary

A Texas forms company sold a multi-part business form used as a shipping document — one part (the "bill of lading") ships out with the product to the end customer, and the other part or parts are kept by the manufacturer-client. The manufacturer-client argued the bill of lading was an exempt "shipping supply."

The Comptroller's Tax Administration Division answered this question twice, eleven days apart, with a different result each time:

• April 5, 1993 (original letter): The bill of lading was not tax exempt. The Comptroller pointed out that "packaging supplies" exempt under Rule 3.314(a)(4) are things like wrapping paper, boxes, tape, and labels — and specifically said "bills of lading, invoices, monthly statements, etc., are not exempt as packaging supplies." It also said the forms company could not accept an exemption certificate for these forms in good faith, and the client would be liable for the tax.
• April 12, 1993 (this corrected letter): The Comptroller reversed course. If the client is a manufacturer, it may issue an exemption certificate for the bill-of-lading forms — but the manufacturer must then self-assess use tax on the cost of whatever part(s) of the form do not ship out with the product. The letter gives an example: on a three-part form where only two copies go out with the shipping container, the manufacturer owes use tax on 1/3 of the cost.

Both letters agree on the general packaging-supplies rule: supplies like wrapping paper, twine, bags, boxes, cartons, pallets, tape, labels, and similar materials are exempt under Rule 3.314(a)(4) when a manufacturer buys them as part of completing the manufacturing process. What changed is only how that rule applies to a shipping-document form that's partly shipped and partly retained.

What this means for you

Businesses that sell custom shipping/business forms

If you sell multi-part shipping forms (bills of lading, packing slips, etc.) to manufacturers, this corrected ruling says you may accept an exemption certificate from a manufacturer-client for those forms. The manufacturer, not you, then carries the responsibility to self-assess use tax on the portion of the form's cost that isn't actually shipped out with the product.

Manufacturers buying multi-part shipping forms

If part of your shipping form travels with the product and part stays in your files, you can't treat the whole form as 100% exempt packaging. Under this letter, you owe use tax on the cost allocated to the retained copy or copies — e.g., 1/3 of the cost on a three-part form if only two parts ship out.

Accountants and tax professionals

This is a useful example of the Comptroller correcting itself within the same short window (April 5 to April 12, 1993) on the same taxpayer's facts. The controlling answer is the April 12 letter's proportional self-assessment approach, not the flat "not exempt" answer from April 5 — but both letters agree that generic "packaging supplies" under Rule 3.314(a)(4) (wrapping paper, boxes, tape, labels, etc.) are exempt to a manufacturer completing the manufacturing process, and that a bill of lading itself doesn't automatically qualify just by being labeled a shipping document.

Common questions

Q: Is a bill-of-lading shipping form exempt from Texas tax?
A: Under the corrected (April 12, 1993) answer, if the buyer is a manufacturer, it may issue an exemption certificate for the form, but must self-assess use tax on the cost of any part(s) of the form that are not shipped out with the product.

Q: Didn't the Comptroller originally say "No"?
A: Yes. The April 5, 1993 letter said the bill of lading was not tax exempt at all, and that bills of lading, invoices, and monthly statements are not exempt as packaging supplies. The April 12, 1993 letter is a follow-up that "corrects my prior response" and replaces that answer with the proportional self-assessment rule described above.

Q: Are general packaging supplies (boxes, tape, wrapping paper) exempt?
A: Yes, per Rule 3.314(a)(4), packaging supplies — including wrapping paper, wrapping twine, bags, boxes, cartons, crates, crating material, pallets, tape, rope, rubber bands, metal bands, labels, staples, glue, mailing tubes, excelsior, straw, cardboard fillers, separators, shredded paper, ice, dry ice, cotton batting, shirt boards, and hay lath — are exempt when purchased by a manufacturer as part of completing the manufacturing process.

Q: Is the forms seller liable for the tax on the bill of lading?
A: Under the April 12 corrected letter, that question is answered by reference to the corrected answer to question 1 above: a manufacturer-client can furnish an exemption certificate, but then owes self-assessed use tax on the retained-portion cost. The April 5 letter had instead said the seller could not accept an exemption certificate in good faith and the client would be liable.

Q: Does this ruling apply to my business?
A: No — this letter is based on one taxpayer's specific facts and, under STAR's rules, can only be relied on as the basis for a detrimental-reliance claim by the taxpayer it was issued to. It may also no longer reflect current Comptroller policy.

Citations and references

Rules cited:

• Rule 3.314(a)(4) (definition of exempt "packaging supplies" for manufacturers)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9304L1235A01

Original ruling text

April 12, 1993

Dear ***:

This is a follow-up to my previous letter to you concerning the taxability
of "bill of lading" forms sold to a client. This letter corrects my prior
response, I apologize for any inconvenience this may have caused you.

*** Corporation sells custom made business forms. The form in
question is a multi-part form used as a shipping document. Part of this form
is shipped by the client with their product, the other part (or parts) are
retained by the client. Your client is claiming that the bill of ladings are
used as shipping supplies to ship the product and therefore tax exempt.

Your questions are as follows:

1. Is this bill of lading tax exempt?

RESPONSE: If your client is a manufacturer, it may issue your company an
exemption certificate for the "bill of lading" forms. The manufacturer will
then have to self assess use tax on the cost for the part of the forms that are
not attached to the shipping container (i.e., if this is a three part form and
the manufacturer only attaches two copies to the shipping container, the
manufacturer will owe use tax on 1/3 of the cost).

2. Are shipping supplies tax exempt?

RESPONSE: "Packaging supplies", as defined, below are exempt when purchased
by a manufacturer for use as a part of the completion of the manufacturing
process.

Packaging supplies - All internal and external wrapping, packing, and
packaging supplies including wrapping paper, wrapping twine, bags, boxes,
cartons, crates, crating material, pallets, tape, rope, rubber bands, metal
bands, labels, staples, glue, mailing tubes, excelsior, straw, cardboard
fillers, separators, shredded paper, ice, dry ice, cotton batting, shirt
boards, and hay lath. [Rule 3.314 (a)(4)]

3 . Is the client liable for the tax on the "bill of lading"?

RESPONSE: See response to #1 above.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call me at
1-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

April 5, 1993

Dear ***:

This is in response to your letter concerning the taxability of "bill of
lading" forms sold to a client.

*** Corporation sells custom made business forms. The form in
question is a multi-part form used as a shipping document. Part of this form
is shipped by the client with their product, the other part (or parts) are
retained by the client. Your client is claiming that the bill of lading is
used as shipping supplies used to ship the product and therefore tax exempt.

Your questions are as follows:

1. Is this bill of lading tax exempt?

RESPONSE: No.

2. Are shipping supplies tax exempt?

RESPONSE: Packaging supplies, as defined, below are exempt when purchased
by a manufacturer for use as a part of the completion of the manufacturing
process.

Packaging supplies - All internal and external wrapping, packing, and
packaging supplies including wrapping paper, wrapping twine, bags, boxes,
cartons, crates, crating material, pallets, tape, rope, rubber bands, metal
bands, labels, staples, glue, mailing tubes, excelsior, straw, cardboard
fillers, separators, shredded paper, ice, dry ice, cotton batting, shirt
boards, and hay lath. [Rule 3.314 (a)(4)]

Bills of lading, invoices, monthly statements, etc., are not exempt as
packaging supplies.

3. Is the client liable for the tax on the bill of lading?

RESPONSE: Yes. *** Corporation may not make a good faith
acceptance of an exemption certificate claiming bill of lading forms as
packaging supplies.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call me at
1-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 93050110.L05