Were reusable plastic pallet rentals and related fees exempt as one-time packaging, and could the lessor buy the pallets for resale tax-free?

Plain-English summary

Florida held that rentals of reusable plastic shipping pallets—and the related charges under the rental agreement—were subject to sales tax.

The pallets were tagged and tracked, returned to the lessor or manufacturer, and reused. Fees covered issuance, daily rent, transfers, out-of-network movements, fuel, accessorial services, prohibited destinations, damage, and loss. Those facts were incompatible with the one-time packaging exemption in Fla. Admin. Code R. 12A-1.040(2).

Sales tax applied to the total consideration paid under the rental agreement, including the related fees and charges. The lessor's original purchase was different: pallets bought exclusively for leasing could be purchased for resale without tax when the lessor gave the seller its Annual Resale Certificate.

What this means for you

Pallet-pooling and packaging businesses

Return, tracking, reuse, lost-pallet fees, and damage fees show that the pallets are rental property rather than disposable packaging.

Manufacturers and distributors

The rental tax base included more than the daily rental line; related charges under the agreement were also taxable.

Common questions

Were the pallet rentals exempt as one-time packaging? No.

Were the related fees taxable? Yes, as part of total rental consideration.

Could the lessor buy the pallets tax-free? Yes, for exclusive leasing use with a valid resale certificate.

Citations and references

• Fla. Stat. Sec. 212.02(14)(c)
• Fla. Stat. Sec. 212.05
• Fla. Admin. Code R. 12A-1.040(2) and (6)
• Fla. Admin. Code R. 12A-1.071

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 21A-010

Original ruling text

Question: Whether reusable plastic shipping pallets are exempt on the original purchase
and whether the subsequent rental and all related charges associated with the rental
are exempt as a sale of packaging material for one-time use.
Answer: The “one-time use” provision as contemplated in Rule 12A-1.040(2), F.A.C.,
does not apply to reusable pallets that are purchased exclusively for leasing purposes
and returned to the lessor after use. Accordingly, the provisions of Rule 12A-1.071,
F.A.C., apply and sales tax is due and payable by the lessee to the lessor on the total
consideration, including other fees and charges included in the rental charges paid
under the terms of the agreement. Taxpayer’s initial purchase of the pallets used
exclusively for leasing purposes may be purchased tax-exempt provided a copy of the
dealer’s Annual Resale Certificate is issued to the selling dealer at the time of purchase.

August 23, 2021
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Technical Assistance Advisement (TAA)
TAA #: 21A-010
TAXPAYER NAME: XXXXXXXXXX (TAXPAYER)
FEIN Number: XXXXXXXXXX
Sales & Use Tax – Reusable Pallets
Section 212.02, 212.05, and 212.08, Florida Statutes (F.S.)
Rule 12A-1.040, Florida Administrative Code (F.A.C.)
Dear XXXXXXXXXX:
This is in response to the letter dated February 17, 2021, requesting this Department’s
issuance of a Technical Assistance Advisement (“TAA”) pursuant to s. 213.22, F.S., and
Chapter 12-11, Florida Administrative Code (Fla. Admin. Code) regarding the lease of
reusable shipping pallets. Your request has been carefully examined, and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, Fla. Admin. Code. This response to your request constitutes a TAA and is issued to
you under the authority of s. 213.22, F.S.

Technical Assistance Advisement
August 23, 2021
Florida Department of Revenue
Page 2

REQUESTED ADVISEMENT
Whether reusable plastic shipping pallets are exempt on the original purchase and
whether the subsequent rental and all related charges associated with the rental are
exempt as a sale of packaging material for one-time use.
FACTS
As provided in your letter, Taxpayer rents reusable plastic shipping pallets typically to
manufacturers who use the pallets to ship their products to distributors and retailers.
Taxpayer arranges for the pallets to be returned to its facility or back to the
manufacturer for subsequent reuse. You have outlined nine fees related to the pallet
rentals.
•
•
•
•
•
•
•
•
•

Issue Fee – A one-time fee imposed upon receipt of the pallet by the customer.
Daily Rent – A per day/unit charge for the number of pallets rented.
Transfer Fee – A one-time charge for the transfer of pallets to an authorized
location and/or retailer.
Out of Network Fee – A one-time charge for the transfer of pallets to an “out-ofnetwork” location.
Fuel Surcharge – A charge for fuel “if warranted”.
Accessorial Fees – Fees the customer pays that are in addition to the standard
costs included in normal freight tender (i.e., detention charges, truck ordered not
used, etc.).
Do Not Ship Fee – A fee charged to the customer if the customer ships a pallet to
a “do not ship” location.
Destroyed Pallet Fee – A charge to the customer for damaging a pallet.
Lost Pallet Fee – A charge to the customer for an unreturned pallet.

Taxpayer purchases the pallets for resale and each pallet contains a tag that is used to
track the location of the pallets at each step throughout the supply process. You have
attached a rental agreement outlining the terms of the agreement between Taxpayer
(lessor) and the customer (lessee). Under the terms of the agreement, Taxpayer
provides its customer with a supply of pallets and “pallet and information management
services”. It is also noted that customers may transfer pallets only to authorized
locations.
Taxpayer is seeking guidance regarding the “one-time use” as contemplated in Rule
12A-1.040(2), F.A.C., relating to packaging materials. Specifically, it is your
interpretation that the original purchase is exempt as a purchase for subsequent resale,
and the rental and all related charges associated with the rental as a sale for one-time
use of packaging material. As an initial matter, Taxpayer refers to Technical Assistance

Technical Assistance Advisement
August 23, 2021
Florida Department of Revenue
Page 3

Advisement (TAA) 99A-003 in support of this position although Taxpayer acknowledges
that the fact-pattern (in TAA-99A-003) may not align with those of the current Taxpayer.
LAW & DISCUSSION
As provided in Section 212.05, F.S., it is declared to be the legislative intent that every
person is exercising a taxable privilege who rents or furnishes any of the things or services
taxable under this chapter. For the exercise of such privilege, tax is levied at the rate of 6
percent of the sales price of each item or article of tangible personal property sold at retail
in this state. Section 212.08(13), F.S., states that no transactions shall be exempt from
the tax imposed by this chapter except those expressly exempted herein.
Section 212.02(14)(c), F.S., excludes from the definition of “retail sale,” materials,
containers, labels, sacks, bags, or similar items intended to accompany a product sold to a
customer without which delivery of the product would be impracticable because of the
character of the contents and be used one time only for packaging tangible personal
property for sale or for the convenience of the customer.
As provided in Rule 12A-1.040(2)(a), F.A.C., the sale, use, storage, or consumption of
materials containers, labels, sacks, bags, or similar items that are intended to
accompany a product sold to a customer and to be used one time only for packaging
tangible personal property for sale is not subject to tax when:

1. Delivery of the product would be impracticable because of the character
   of the contents; or
2. Such items are used for the convenience of the customer.
   Rule 12A-1.040(2)(b), F.A.C., states that the sale, use, storage, or consumption of
   materials, containers, labels, sacks, bags, or similar items used for packaging in the
   process of providing a service subject to tax under Chapter 212, F.S., is not subject to
   tax. Pallets are not subject to tax when used one time only as provided in paragraph (a)
   or (b) of Rule 12A-1.040(2), F.A.C.
   Rule 12-1.040(6), F.A.C., provides guidance pertaining to deposits charged for the use of
   reusable containers. As provided in this subsection:
   (a)1. Deposits charged for reusable containers, such as barrels, drums,
   kegs, pallets, or spools, that are to be returned by the purchaser to the
   selling dealer upon removal of the contents from the container are not
   subject to tax when:
   a. The amount of the deposit is separately itemized on the purchaser’s
   bill, invoice, or other tangible evidence of sale;
   b. The total amount of the deposit is refunded to the purchaser when the
   container is returned to the selling dealer;

Technical Assistance Advisement
August 23, 2021
Florida Department of Revenue
Page 4

c. Title to the container is retained by the selling dealer;
d. The container is used only to contain the tangible personal property
sold to the purchaser while in the process of delivery or conveyance to the
purchaser; and,
e. The selling dealer retains records to identify which customers are
holding the containers and which customers have returned the containers.

2. Example: A manufacturer ships its products to purchasers on pallets.
   The contents of the shipment are secured to the pallets by wire banding.
   The pallets are designed by the manufacturer to be used for more than one
   shipment, bear the name of the manufacturer, and are assigned an
   inventory number. When the manufacturer ships merchandise to a
   customer, a deposit is separately itemized on the customer’s invoice to
   assure the return of the identified pallets. The separately itemized deposit
   is not subject to tax. The purchase or fabrication of the pallets by the
   manufacturer is subject to tax.
   In construing statutory exemptions from tax, the Department must follow the fundamental
   rule of statutory construction established by the Florida Supreme Court, which mandates
   that exemptions from, or exceptions to, taxing statutes are special privileges granted by
   the legislature and must be strictly construed, "with any doubt being resolved in favor of
   the state." State v. Dickinson, 286 So. 2d 259 (Fla. 1974).
   Florida courts have consistently held that exemptions must not be expanded beyond
   their express terms and must be strictly and narrowly construed against the taxpayer.
   See Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981); State ex rel.
   Szabo Food Services. Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973). See also Asphalt
   Pavers v. Dept. of Revenue, 584 So.2d 55 (Fla. 1st DCA 1991), at 57 (citing the rule
   that exemptions from tax are strictly construed against the taxpayer, with any ambiguity
   resolved in favor of the administrative agency).
   The rational for the "one-time use" requirement was set forth in Gay v. Canada Dry
   Bottling Co. of Florida, 59 So.2d 788 (Fla. 1952). The Court stated that those containers
   "... which are not returned to and re-used by the manufacturer of the product contained
   therein, are purchased for resale where the cost of such containers adds to the price of
   the product." Id. at 789. Thus, the exemption for these one-time use containers avoids
   double taxation because the manufacturer includes the cost of the disposable container
   in the price of the product, and the price of the container is then taxed upon the ultimate
   retail sale.
   In Mid-Florida Mining Company v. State of Florida Department of Revenue, Case No.
   92- 3143 (Cir. Ct., 5th Dist.), the court considered an assessment of tax against a
   manufacturer of cat litter which was using pallets to prepare its products for pick up by
   its customers. Mid-Florida purchased both new and used pallets from third party
   vendors, and it re-purchased a small amount of its pallets from customers. Tax had
   been assessed only on purchases of the pallets from third parties. The court considered

Technical Assistance Advisement
August 23, 2021
Florida Department of Revenue
Page 5

that Mid- Florida's subjective intended use of the pallets controlled. The court found that
Mid-Florida used the pallets only one time in shipping its product, and it never expected
to retrieve the pallets from its customers. This is true, even though the facts of the case
showed that the pallets were capable of being used more than one time, since MidFlorida purchased some used pallets, and it, on occasion, re-purchased pallets from
some customers.
Under a strict construction of the regulatory statutes and rules, the “one-time use”
provision as contemplated in Rule 12A-1.040(2), F.A.C., does not apply to the rental of
reusable pallets at issue. Specifically, as noted by the Court in Gay v. Canada Dry
Bottling Co. of Florida, 59 So.2d 788 (Fla. 1952), the rational for the one-time use
provision was met since the pallets were not returned to and re-used by the
manufacturer of the product contained therein and the pallets were therefore deemed to
be purchased for resale where the cost of such containers adds to the price of the
product sold. Similarly, in Mid-Florida Mining Company v. State of Florida Department
of Revenue, Case No. 92-3143 (Cir. Ct., 5th Dist.), the court found that Mid-Florida used
the pallets only one time in shipping its product, and it never expected to retrieve the
pallets from its customers. Here, as acknowledged in Taxpayer’s request, the pallets
are either returned to Taxpayer (as the lessor) or to the manufacturer (as the lessee)
and fees are imposed (on the manufacturer or retail customer of Taxpayer) for any lost
or damaged pallets. Accordingly, under the terms of Taxpayer’s agreements with
customer, neither Taxpayer nor Taxpayer’s customers can reasonably have an intent to
use the pallets one-time only.
It is noted that, in TAA (99A-003)1 cited in your request, Taxpayer only charged three
(3) fees (issue fee, daily rent, and transfer fee), and upon receipt of the goods by the
distributor, the manufacturer ceased all responsibility for the pallet, and arrangements
were made between the third party depot hired by the taxpayer and the distributor to
recover the pallet. Also, in that case (TAA 99A-003), “regardless of the amount of time
the distributor holds the pallet/containers on their premises, the manufacturers’ per day
rental fee ceases when the manufacturer ships their product to the distributor.” Here,
the distributor is required to return the empty pallets to Taxpayer (lessor) or Taxpayer’s
customer (lessee). Also, in addition to the one-time issue fee, the daily rental fee (which
ceases when the manufacturer sends their product to the distributor), and the transfer
fee, Taxpayer imposes six (6) additional fees in the event a pallet is lost, destroyed, or
sent to an unauthorized location, etc., and arranges for the pallets to be returned to its
facility or back to the manufacturer for subsequent reuse.
CONCLUSION
Under a strict construction of the regulatory statutes and rules, and relevant Florida cases,
the “one-time use” provision as contemplated in Rule 12A-1.040(2), F.A.C., does not
TAA’s issued to other Taxpayers have no precedential value except to Taxpayer who requested the advisement,
and then, only for the specific transaction presented. See s. 213.22(1), F.S.
1

Technical Assistance Advisement
August 23, 2021
Florida Department of Revenue
Page 6

apply in this instance. Accordingly, the provisions of Rule 12A-1.071, F.A.C., apply and
sales tax is due and payable by the lessee to the lessor on the total consideration,
including other fees and charges included in the rental charges paid under the terms of
the agreement. Taxpayer’s initial purchase of the pallets used exclusively for leasing
purposes may be purchased tax-exempt provided a copy of the dealer’s Annual Resale
Certificate is issued to the selling dealer at the time of purchase.
This response constitutes a Technical Assistance Advisement under Section 213.22,
Fla. Stat., which is binding on the Department only under the facts and circumstances
described in the request for this advice, as specified in Section 213.22, Fla. Stat. Our
response is predicated on those facts and the specific situation summarized above.
You are advised that subsequent statutory or administrative rule changes, or judicial
interpretations of the statutes or rules, upon which this advice is based, may subject
similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents
are public records under Chapter 119, Fla. Stat., and are subject to disclosure to the
public under the conditions of Section 213.22, Fla. Stat. Confidential information must
be deleted before public disclosure. In an effort to protect confidentiality, we request
you provide the undersigned with an edited copy of your request for Technical
Assistance Advisement, the backup material and this response, deleting names,
addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 10 days of the date of this letter.
Sincerely,

Richard R. Parsons
Richard R. Parsons
Tax Law Specialist
Technical Assistance & Dispute Resolution

NOTICE UNDER THE AMERICANS WITH DISABILITIES ACT
Persons needing an accommodation to participate in any proceeding before the Technical Assistance
and Dispute Resolution Office should contact that office at 850-617-8346, or you may also call via the
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Control # 491795