Does a wholesaler/merchandiser owe Texas sales tax on boxes, dry ice, and other packaging materials used to ship products to customers, including offshore customers?

Plain-English summary

A grocery wholesaler asked the Comptroller whether it owed sales tax on packaging materials — specifically boxes and dry ice — used to ship its products, including shipments to offshore customers. The Comptroller's answer: yes. Under 34 Tex. Admin. Code § 3.314(c), wrapping and packaging supplies sold to persons other than manufacturers are taxable, and boxes and dry ice fall squarely within that category.

Because the taxpayer's business was wholesale distribution of groceries and related products — not manufacturing or processing — it did not qualify for the exemption available to manufacturers. The letter emphasizes that the wholesaler, not its downstream customer, is legally the purchaser of the packaging supplies, so the supplies are not being bought "for resale." That analysis applies equally to goods shipped to offshore customers; shipping internationally does not by itself exempt the packaging materials from tax. The letter does note that other subsections of the same rule — covering manufacturers (subsection (b)), combination businesses that both manufacture and resell (subsection (d)), and export packers (subsection (i)) — might allow an exemption if the taxpayer's actual operations fit one of those categories.

What this means for you

Wholesalers and distributors

If your business buys or resells finished goods rather than manufacturing them, you generally owe sales tax on the boxes, dry ice, markers, chalk, labels, and other packaging materials you use to ship those goods to customers — even when the end customer is located outside the country. You are treated as the end consumer of the packaging supplies, not as reselling them to your customer.

Manufacturers and processors

The tax treatment is different if you actually manufacture or process the goods you're packaging. Review 34 Tex. Admin. Code § 3.314(b) (manufacturers), (d) (combination manufacturing/reselling businesses), and (i) (export packers) to see whether your specific operations qualify for an exemption on packaging supplies.

Businesses shipping to offshore or out-of-state customers

Don't assume that shipping a product overseas or across state lines automatically exempts your packaging materials from Texas sales tax. This letter confirms that an offshore destination for the finished product does not change the taxability of packaging supplies purchased by a non-manufacturing wholesaler.

Common questions

Q: We're a wholesaler shipping groceries to customers overseas — do we owe tax on the boxes and dry ice we use?
A: Yes. Because you are a wholesaler rather than a manufacturer, you must pay tax on wrapping and packaging supplies like boxes and dry ice under 34 Tex. Admin. Code § 3.314(c), even for products shipped to offshore customers.

Q: Can we treat the packaging materials as purchased "for resale" since they end up going to the customer along with the product?
A: No. The letter states that the wholesaler, not the customer, is the purchaser of the packaging supplies, so they are not exempt as a resale purchase.

Q: Are there any circumstances where a business like ours could avoid tax on packaging supplies?
A: Possibly, if your operations qualify as a manufacturer, a combination manufacturing/reselling business, or an export packer under subsections (b), (d), or (i) of 34 Tex. Admin. Code § 3.314. The letter doesn't determine that for this taxpayer and instructs them to review those subsections.

Q: Does it matter that the dry ice and boxes are marked or labeled with markers and chalk for shipping purposes?
A: No — the ruling treats all such wrapping and packaging supplies (boxes, dry ice, markers, chalk, labels) the same way under subsection (c): taxable when purchased by a non-manufacturing wholesaler or retailer.

Citations and references

• 34 Tex. Admin. Code § 3.314 (wrapping and packaging supplies), specifically:
  • Subsection (c) — taxes wrapping/packaging supplies sold to non-manufacturers
  • Subsection (b) — manufacturers exemption
  • Subsection (d) — combination businesses
  • Subsection (i) — export packers

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9405356L

Original ruling text

May 10, 1994

Dear **:

I am responding to your letter postmarked May 5, 1994, asking about the
taxability of packaging materials for your offshore customers. You are
specifically interested in the taxability of boxes and dry ice.

Our records indicate that your company is primarily engaged in the wholesale
distribution of groceries and related products. Title 34, Texas Administrative
Code, Section 3.314 addresses the exemptions available for wrapping and
packaging materials. I have enclosed a copy for your review.

Subsection (c) taxes the sale of wrapping and packaging supplies to persons
other than manufacturers. These supplies include boxes and dry ice. Because
your company is a retailer or wholesaler of tangible personal property rather
than a manufacturer or processor, you must pay tax on the wrapping and
packaging supplies for all products sold. This also applies to those sold to
your offshore customers. Your company, not your customer, is the purchaser of
the packaging supplies. These supplies are not purchased for resale.

You should read subsection (b) regarding manufacturers, subsection (d)
regarding combination businesses, and subsection (i) regarding export packers.
If your business operations qualify under either of these subsections, then you
may claim the exemptions as allowed.

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

You may also write to Tax Administration Division, Comptroller of Public
Accounts, Post Office Box 13528, Austin, Texas 78711-3528.

Sincerely,

Tax Administration Division