SURVEY OF SALES AND USE TAXES IMPOSED ON, AND EXEMPTIONS FROM SALES AND USE TAXES FOR, CONTAINERS, PALLETS AND OTHER PACKAGING AND SHIPPING MATERIALS © 2004, 2006 Reusable Pallet and Container Coalition, Inc. All rights reserved. No part of this publication may be reproduced or redistributed in any form or by any electronic or mechanical means without the written permission of the Reusable Pallet and Container Coalition, Inc. TABLE OF CONTENTS SECTION I………………………………………………………….……....Page 3 Taxability of Sales, Leases, and Use of Pallets and Containers, with Notes regarding Exemptions. State by State Table with links to Statutes and Administrative Codes. SECTION II ……………………………………………………………….Page 14 State Exemptions from Sales and Use Tax for Containers, Pallets, and Other Packaging and Shipping Materials. Extensive Survey of State Statutes and Administrative Codes SECTION III ……………………………………………………..………Page 184 State Departments of Tax and Revenue. Tabular Listing of Names, Addresses, and Telephone Numbers for Chief Administrators of State Departments of Tax and Revenue. 2 SECTION I. SUMMARY OF SALES AND USE TAXES ON CONTAINERS, PALLETS AND OTHER PACKAGING AND SHIPPING MATERIALS (INCLUDING REUSABLE PALLETS AND CONTAINERS) A. Introduction Most states in the United States impose a sales tax on sales of tangible personal property to a final user or consumer of the property. The transaction is referred to by various terms, such as “retail sale” or “sale at retail,” and in most jurisdictions, it includes leases, rentals and other transfers of custody or possession in exchange for valuable consideration. Most state statutes contain a provision that declares a presumption that such transactions involving the sale, lease or rental of tangible personal property are taxable. However, consistent with the intent to impose the tax on sales to a final user or consumer, every state statute contains exclusions or exemptions for many types of intermediate transactions in which the tangible personal property is not passed to the final user or consumer. Examples of such exclusions and exemptions include the following: 1. Sales for resale; 2. Sales of components or ingredients of property produced for sale; 3. Sales of property consumed in manufacture or production of articles for sale; 4. Sales of manufacturing machinery or equipment; and 5. Sales of containers and packaging. Although the statutes, regulations and administrative pronouncements by state taxing authorities attempt to set out the scope of the various exemptions, it can often be difficult to determine when one transaction is taxable and another similar transaction is exempt. Indeed, many intermediate business transactions are subject to the sales tax. 3 In addition, there are many exclusions and exemptions which apply to an otherwise taxable transaction simply because of who the purchaser is. For example, charitable organizations are almost universally treated to an exemption from the sales tax. Likewise, farmers and other agricultural producers may purchase or lease tangible personal property exempt from tax, when a non-agricultural business purchasing or leasing the same items would be subject to the sales tax. And the statutory and administrative exclusions and exemptions will often be applied depending upon the particular use to which the purchaser or lessee intends to put the articles purchased or leased. Finally, the statutes and regulations often contain exclusions and exemptions that have no basis in sound tax theory, but exist simply because the legislature or tax commissioner has made a decision the carve out an exclusion or exemption for a particular type of transaction, purchaser classification, or use of the tangible personal property being purchased. B. Taxation and Exemptions for Containers, Pallets and other “Packaging Materials” The question of the taxability of one particular type of tangible personal property, over the years, has been so vexing that many state legislatures have written specific statutory provisions to deal with it: what are generally referred to as “containers” and “packaging materials.” The problem has been that containers and packaging materials are generally purchased or leased for the purpose of holding, containing, shipping, transporting, or delivering other property that is really the subject of the transaction. And frequently, the seller does not impose any charge or fee for the container or packaging separate and apart from the contents themselves. The sale, lease or rental of containers or packaging materials can be viewed theoretically in more than one way: (a) as a sale for resale to the final user or consumer, or (b) as a sale to a vendor for use and consumption of the container or packaging in preparing its product for sale. Because neither of these exemptions affords consistent results in the administration of the sales tax, many state legislatures have adopted special exemptions dealing with the different kinds of containers and packaging materials. Many of these statutes, or the regulations and administrative pronouncements issued in interpreting the statutes, distinguish between “nonreturnable” and 4 “returnable” containers and packaging. The purpose for drawing this distinction appears to be to exempt from sales and use tax those containers and packaging materials that will accompany the goods and products sold in the containers to a final consumer (who then disposes of the packaging), and to tax containers and packaging that are to be returned to a seller, packager, shipper or other person who can reuse the container for shipment, transportation or delivery of future goods and products. Table No. 1, which is set forth below, provides in summary form information on the taxability or exemptions of “disposable packaging,” “reusable pallets,” and “reusable containers.” Below is a brief key to the contents of each of the columns of the Table: Column 1: This column sets forth the states that impose a sales or use tax on transactions in tangible personal property. At present, Alaska, Montana, New Hampshire, and Oregon do not levy a sales or use tax on containers, pallets and other similar articles. Column 2: The statutory citation to the state sales tax law is set forth in this column (also referred to as “gross receipts tax,” “excise tax,” et al.). It should be noted that most states also impose a use tax, which usually is set forth in a separate title or chapter of the statute. Delaware does not impose a sales tax, but does impose a use tax on leases of tangible personal property. Column 3: Exemptions for “disposable packaging.” Most states permit exemptions for disposable packaging as “nonreturnable” packaging materials. Column 4: Exemptions for “reusable pallets.” Please note that a “yes” in this column does not mean that all reusable pallets are exempt from taxation; often, states have limited this exemption to a particular type of user such as farmers (e.g., New Jersey), or to particular types of use such as produce or meat shipments (e.g., Wisconsin). Where there is an asterisk (*), it indicates the exemption is usually limited to a particular user or use, rather 5 than to “reusable pallets” generally. Where there a question mark (?), this indicates that the issue whether there is an exemption or not is not clear cut, and further research or inquiry should be undertaken. Column 5: Exemptions for “reusable containers.” Please note that a “yes” in this column does not mean that all reusable containers are exempt from taxation; often, states have limited this exemption to a particular type of user such as farmers (e.g., New Jersey), or to particular types of use such as produce or meat shipments (e.g., Wisconsin). Where there is an asterisk (*), it indicates the exemption is usually limited to a particular user or use, rather than to “reusable containers” generally. Where there a question mark (?), this indicates that the issue whether there is an exemption or not is not clear cut, and further research or inquiry should be undertaken. Column 6: This column gives a brief glimpse into which types of containers, pallets, or other packaging materials the particular state exempts, if any. The pertinent provisions of the state’s statute and administrative regulations and rulings are set forth at greater length in SECTION II. 6 TABLE NO. 1 TAXABILITY OF SALES, LEASES AND USE OF PALLETS AND CONTAINERS, WITH NOTES REGARDING EXEMPTIONS STATE SALES TAX LAW DP* RP* RC* NOTES Alabama Michie’s Alabama Yes Yes? Yes? Nonreturnable containers and pallets are exempt; Code §40-23-1, et seq. returnable containers and pallets used to ship poultry products may be exempt Alaska No statewide sales and N/a N/a N/a City or borough sales tax may apply use tax Arizona Arizona Revised Yes No No Exempts sale of container as sale for resale if Statutes Annotated buyer is to transfer it with contents in future sale; §42-5001, et seq. if container is not subsequently sold, sale is taxable Arkansas Arkansas Code of 1987 Yes No No? Nonreturnable pallets delivered with final product Annotated §26-52-101, are exempt; returnable pallets are taxable et seq. Materials used by manufacturer or processor to transport product and which are returned or do not become part of finished product are taxable California California Revenue and Yes Yes Yes Exempt: Taxation Code 1. Nonreturnable containers when sold or leased Annotated §6001, et without contents then sold with contents to end seq. user 2. Containers when sold with nontaxable contents 3. Returnable containers when sold with contents in retail sale or when resold for refilling 4. Containers, when sold or leased without contents to persons who put food products in container for shipment for resale. Colorado Colorado Revised Yes Yes Yes Containers exempt if used to contain Statutes Annotated §39- manufactured or compounded product. 26-101, et seq. Pallets and containers exempt if used as “farm equipment” by agricultural producer. Connecticut Connecticut General Yes? Yes Yes? Exempt: Statutes Annotated §12- 1. Nonreturnable containers (and returnable dairy 401, et seq.