Containers, Wrapping, Packing and Shipping Materials

32.1. In General.

32.1.1. The sale to a vendor of boxes, cartons, containers, and wrapping and packaging materials and supplies, and components thereof, for use or consumption by that vendor in packaging or packing tangible personal property for sale, and actually transferred by that vendor to the purchaser, is exempt from consumers sales and service tax and use tax as a purchase for resale.

Example 1. A manufacturer sells goods in bulk and ships them in corrugated cardboard cartons to a retailer. The retailer after using the cartons as temporary storage containers removes the goods and discards the cartons. The manufacturer's purchase of the cartons is exempt from consumers sales and use taxes as a purchase for resale.

Example 2. Wax tissue paper is sold to a bakery which uses it to pick cookies from a tray. The cookies and paper are then placed in bags or boxes. The wax paper and the bags and boxes are exempt from consumers sales and service tax and use tax as a purchase for resale.

Example 3. Purchases of egg cartons by persons engaged in the business of selling eggs are exempt from tax when such cartons become a part of the sale of the eggs to the customer.

32.1.2. The sale to a vendor of boxes, cartons, containers, and wrapping and packaging material and supplies, and components thereof, to a vendor which are actually transferred to a customer in conjunction with the performance of a taxable service are exempt from consumers sales and service tax and use tax as a purchase for resale.

Example 1. A watch repairman packs a watch in a box, with cushioning material, to return it to his customer. His purchase of the box and packing material is exempt as a purchase for resale.

Example 2. Purchases of packaging and packing materials by warehousemen and movers for use in the performance of storage or moving services are exempt if such materials are actually transferred to the customer in conjunction with the service being furnished.

32.1.3. The sale to a vendor of boxes, cartons, containers, and wrapping and packaging materials and supplies, and components thereof, which are not purchased for resale are taxable unless some other exemption applies.

32.2. Definitions.

32.2.1. The term "Packaging materials" includes, but is not limited to: bags, barrels, baskets, bindings, bottles, boxes, cans, carboys, cartons, cellophane, coating and preservative materials, cores, crates, cylinders, drums, excelsior, glue, gummed labels, gummed tape, kegs, lumber used for blocking, pails, pallets, reels, sacks, spools, staples, strapping, string, tape, time, wax paper, and wrapping paper actually transferred with the product to the purchaser.

32.2.2. "Purchaser" in this section refers to any person who purchases tangible personal property from a vendor, whether or not the purchaser is the ultimate consumer.

32.2.3. "Actually transferred" means that the packaging material is physically transferred to the purchaser, for whatever disposition the purchaser wishes.

Example 1. Returnable soda bottles may be returned for refund of deposits or disposed of otherwise. Such bottle is actually transferred to the purchaser and is a purchase for resale except when sold to the ultimate consumer.

Example 2. If a beer keg is required to be returned to the vendor after its contents are used, ownership of this keg is not actually transferred to the purchaser-consumer of the beer. Kegs purchased by a vendor of kegged beer are taxable.

32.3. Returnable Containers. - Sales of returnable containers, such as drums, barrels, or acid carboys, to a purchaser/vendor who does not transfer ownership of the container, are taxable. Title to the container remains with the purchaser/vendor when possession of the container is transferred to one who purchases commodities contained therein and then returns the container to the seller for refilling.

32.3.1. Returnable Containers; Deposits.

32.3.1.1. Deposits charged by vendors for reusable containers are subject to tax when the purchasers of the property contained therein can, during the period the containers are in their possession, exercise such control over the containers as is ordinarily associated with ownership. Such amounts are a part of the sales price even though designated as a deposit for the containers.

32.3.1.2. When the vendor retains title to such containers and the vendor retains the right to control the use which vendee makes of the containers, the containers are not considered to be a part of the sale of the property. In such cases, amounts charged to the customers as security for the return of the containers are not subject to tax if such charges are shown separately from the sales price of the property on the customers' invoices and the security deposit is refunded to the customer when the container is returned. If such amounts are not separately stated, the total charge is subject to the tax.

32.3.2. Returnable Containers; Demurrage. - When a vendor sells tangible personal property in returnable containers without a charge being made for the use of the containers for a specified time but, at the expiration of the specified time, the containers enter a demurrage period and a penalty charge is made as an inducement for the return of the containers, such charges are not subject to the tax unless the penalty is computed on an hourly, daily or some other periodic basis, or payment of the penalty results in title to the container passing to the customer. When a vendor sells tangible personal property in returnable containers and a stated charge is made for the use of the containers throughout the period of retention by the customer, such charges are deemed to be rentals and are taxable.

32.4. Other Containers. - Racks, trays or similar devices used to facilitate delivery of the vendor's product, if title to them is not transferred to the purchaser, are taxable.

Example 1. A baking company delivers bread to a grocer in plastic trays. After unloading the trays, the delivery person takes the trays with him. Sale of the trays to the baking company is taxable.

Example 2. A baking company delivers hamburger buns to a restaurant in stackable plastic trays. The filled trays are placed in the kitchen. The next time that buns are delivered, the empty trays are picked up and returned to the bakery. Sale of the trays to the baking company is taxable.

32.5. Gift Wrapping. - When a vendor gift wraps an item which he sells, the paper, ribbon, and bow become a part of the sale of the item notwithstanding that the wrapping of the item may take place at the point of delivery thereof to the vendee or at one of the vendor's wrapping stations or that the vendor may make a charge for gift wrapping the item. The vendor's purchases of paper, ribbon and bows are purchases for resale and exempt from tax. If a separate charge is made for wrapping, it is deemed to be for services performed in wrapping the item rather than a separate sale of wrapping material, and consumers sales and service tax and use tax will be due on the wrapping charge. In this instance, the vendor's purchases of paper, ribbon and bows are exempt because they are used and consumed by the vendor in providing a taxable service.

32.5.1. In a case where an organization, as a means of raising funds, offers to wrap gift items the customer purchased from others, the organization is considered to be performing a wrapping service; and its purchases of paper, ribbon, and bows for use in the performance of the service are exempt from tax as provided in Section 9 of these regulations. Tax is due on the service charges unless the providing of the services is a "casual and occasional sale" or "isolated transaction" as defined in Section 2 and exempt under Section 9 of these regulations.

32.6. Restaurants - Containers. - Containers of paper cups, plates and other nonreturnable containers purchased by restaurants and other food service establishments, for use as containers for food sold to customers are exempt from consumers sales and use taxes as a purchase for resale when the container is actually transferred to the customer in connection with the customer's purchase of food or drink. This includes, but is not limited to, cups, plates and containers for hot or cold drinks or food purchased for resale as a container of food or drink.