Can a business that charges sales tax on gift-wrapping issue a resale certificate to buy its gift-wrap paper, ribbons, and boxes tax-free?

Subject

Gift-Wrapping Supplies Are Taxable Even When Tax Is Collected On The Wrapping 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/9307001L

Plain-English Summary

A taxpayer wrote to the Comptroller about the taxability of gift-wrapping materials that are consumed when gift wrapping is provided in connection with a taxable sale. The taxpayer explained that it already collects and remits Texas sales tax on the charge it makes to customers for gift wrapping their merchandise, and asked whether it could instead issue a resale certificate to buy its gift-wrapping materials (paper, ribbons, boxes) tax-free.

The Comptroller's response: sales tax is still due on the purchase price of the gift-wrapping supplies used by a business that provides gift-wrapping services — a resale certificate isn't the right mechanism here. The letter specifies that this holds true even if the item being gift wrapped was itself sold by the same business providing the wrapping service. The letter encloses a copy of Rule 3.314 (Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, and Export Packers) and directs the taxpayer specifically to subsection (d).

As with other letters of this kind, the Comptroller notes the opinion is based on the facts presented and could change if the facts are different.

What This Means For You

Collecting tax on the wrapping charge doesn't exempt the wrapping materials. This letter addresses a scenario where a business is doing the "right" thing on one end — charging and remitting sales tax on its gift-wrapping service charge — but still owes tax on the other end, when it buys the paper, ribbons, and boxes it consumes providing that service. Both can be taxable at once; one doesn't excuse the other.

A resale certificate isn't a workaround for consumed supplies. The taxpayer specifically asked about issuing a resale certificate for its gift-wrap purchases. The Comptroller's answer makes clear that gift-wrapping materials used in providing a wrapping service are treated as items consumed by the business, not items being resold to the customer as such, so tax applies on the purchase.

Applies regardless of who sold the wrapped item. The letter is explicit that the outcome is the same "even if the item being gift wrapped was sold by the person providing the gift wrapping service" — so a retailer wrapping goods it sold itself is in the same position as a business that only provides wrapping as a separate service.

Q&A

Q: If I already collect sales tax on my gift-wrapping charge, do I still owe tax on the wrapping paper, ribbons, and boxes I buy?
A: Yes. The letter states that sales tax is due on the purchase price of gift wrapping supplies used by persons providing gift wrapping services, even though tax is separately collected on the wrapping charge itself.

Q: Can I issue a resale certificate to buy my gift-wrapping supplies tax-free?
A: The letter responds to that exact question by stating that sales tax is due on the purchase price of the gift-wrapping supplies — it does not authorize a resale certificate for these purchases.

Q: Does it matter whether I sold the item being gift wrapped?
A: No. The letter says this is true "even if the item being gift wrapped was sold by the person providing the gift wrapping service."

Q: What rule does the Comptroller point to for more detail?
A: Rule 3.314, Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, and Export Packers — the letter specifically references subsection (d).

Q: Does this letter apply to my business if my facts are different?
A: Not necessarily. The letter states the opinion is based on the facts presented, and that different facts could change the opinion.

Original ruling text

July 29, 1993

Dear **:

I have received your letter regarding the taxability of gift wrapping
materials consumed when associated with a service connected to a
taxable sale.

Situation: You state that ** collects and remits Texas sales tax
on the charge for gift wrapping the merchandise sold to the customer.
You asked if a resale certificate can be issued for purchases of gift
wrapping material.

Response: Sales tax is due on the purchase price of gift wrapping
supplies used by persons providing gift wrapping services. This is
true even if the item being gift wrapped was sold by the person
providing the gift wrapping service. Enclosed is a copy of Rule 3.314,
Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, and
Export Packers, for your reference. Please refer to subsection (d).

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free
at 1-800-252-5555.

Sincerely,
Joan Hale
Tax Administration Division