Is wrapping/packaging material taxable when a retailer (not a manufacturer) buys it, and is sales tax due on prepaid telephone calling cards?

Plain-English summary

A video-store business that also sells wrapped pickles asked the Comptroller about two unrelated items. First: is the tissue paper it uses to wrap pickles, or the clear plastic cases it buys to hold rental movies, a taxable purchase? The Comptroller answered that both are taxable — only manufacturers, not retailers, may claim an exemption for wrapping and packaging materials, so a retailer buying tissue paper or protective cases for its own retail/rental operations owes tax on those purchases.

Second: a salesman had told the business it wouldn't need to collect and pay state sales tax on prepaid telephone calling cards it planned to sell in its stores. The Comptroller corrected this: effective September 1, 1997, sales tax is due on the sale of all prepaid telephone calling cards, unless the purchaser (the retailer) gives a resale or exemption certificate at the time it buys the cards from its supplier. A retailer may use a resale certificate to buy the cards tax-free from its supplier, but must then collect and remit sales tax on the price it charges its own customers for the cards.

What this means for you

Retailers (including video rental stores)

The wrapping-and-packaging sales tax exemption is for manufacturers only — if you're a retailer buying tissue paper, plastic cases, bags, or similar materials to package or protect items you sell or rent, you owe sales tax on those purchases yourself.

Businesses selling prepaid phone cards

Since September 1, 1997, prepaid telephone calling cards are taxable. Use a resale certificate to buy the cards tax-free from your supplier, then collect and remit sales tax on what you charge your own customers — don't rely on a salesperson's claim that these cards are tax-free.

Common questions

Q: Can a retailer buy wrapping/packaging materials tax-free?
A: No. Only manufacturers can claim that exemption; a retailer owes tax on materials like tissue paper or cases used to wrap or protect its own retail items.

Q: Is sales tax due on prepaid phone cards?
A: Yes, effective September 1, 1997, unless a resale or exemption certificate is given at the time of purchase from the supplier — and the retailer must then collect tax from its own customers on the card's selling price.

Q: Can another retailer rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710828L

Original ruling text

October 7, 1997

RE: 1. Wrapping and Packaging 2. Phone Cards

Dear*****:

Thank you for your email of October 2, 1997. You asked that we address the
following two situations.

1. We have a video business in which we sell pickles wrapped in tissue paper.
   Is the tissue paper used to wrap the pickle taxable? Also, what about the
   clear cases we purchased to put the movies we rent in. Is that a taxable
   purchase for us?

Response: Both the tissue paper and the clear cases are taxable. Only
manufacturers are allowed to claim an exemption for wrapping and packaging
materials.

2. There is a salesman trying to get us to put phone cards in our video
   stores. He says that we do not have to collect and pay state sales tax on these
   cards. Is this true? From the 9/97 legislative update, I understand that we
   would have to collect and pay sales tax on these items? Please clarify.

Response: Effective September 1, 1997 sales tax is due on the sale of all
telephone prepaid calling cards unless a resale or exemption certificate is
given at the time of purchase. You may issue a resale certificate to purchase
the cards tax free. You must collect and remit sales tax on the selling price
of the card.

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

I hope this information is helpful. If you have any questions, please do not
hesitate to contact me. I can be reached by phone at 1-800-531-5441, extension
5-0037, or by e-mail at . Our mailing address is Tax
Policy Division, Comptroller of Public Accounts, P. O. Box 13528, Austin, Texas
78711.

Sincerely,

Lindey Osborne
Tax Policy Division