Was the rental of reusable pallets and containers tax-free when each manufacturer intended to use them only once to ship products to its customer?

Plain-English summary

Florida exempted the pallet and container rentals because each manufacturer intended to use the rented packaging only once—loading its goods and shipping them to a distributor. After shipment, the manufacturer had no responsibility for or expectation of receiving the pallet back.

The lessor's reuse did not defeat the exemption. The distributor returned the empty pallet to the lessor or its depot, and the lessor could rent it again, but the statute focused on the product manufacturer's intended use. The manufacturer also built the rental cost into the product price rather than separately charging its customer for packaging.

Common questions

Did the pallet have to be physically incapable of reuse? No. The ruling focused on the manufacturer's intent to use it once.

Did the lessor's retained title matter? No. The manufacturer never owned the pallet and did not get it back after shipment.

Could the lessor rent the recovered pallet again? Yes. Later reuse by the lessor did not change the manufacturer's one-time use.

Citations and references

• Fla. Stat. § 212.02(14)(c), (15)(a)
• Fla. Admin. Code r. 12A-1.040(16), (21)
• Gay v. Canada Dry Bottling Co. of Florida, 59 So. 2d 788 (Fla. 1952)
• Mid-Florida Mining Company v. Florida Department of Revenue, Case No. 92-3143 (Fla. 5th Cir. Ct.)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-003

Original ruling text

SUMMARY

Pallets/containers leased to customer(s) who intend to use
the leased pallets/containers one time only for shipping
tangible personal property to their customers, are not
subject to tax pursuant to Section 212.02(14)(c), F.S.

In this case, the taxpayer is in the business of leasing
pallets/containers to manufacturers. The manufacturers use
the pallets/containers to ship their products to their
customers. The manufacturers' intent of one time use for
the pallet/container is the same whether the manufacturers
acquire the pallet/container through purchase or lease to
deliver their product. The manufacture places its products
on the pallets/containers, secured with the use of load
formers, cornerposts and stretch wrap. There is no separate
charge the packaging (i.e., the cornerposts, stretch wrap,
or the pallets/containers).

The taxpayer charges the Manufacturers an "issue fee" when
a pallet/container is delivered. This is a one-time flat
fee charge per pallet/container. There is a per day rental
fee which ceases when the manufacturer sends their product
(on the pallet/container) to their distributor. The
taxpayer also charges a one-time flat fee referred to as a
"transfer fee" when the manufacturer delivers their product
(on/in the pallet/container) to the distributor.

After receipt of the goods by the distributor, the
manufacturer ceases all responsibility for the
pallet/container. Arrangements are made between a third
party depot hired by the taxpayer and the distributor to
recover the pallet/container. 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.
The distributor, not the manufacturer of the product loaded
on the pallet, is required to return the empty pallets to
the Taxpayer.

Once the manufacturer delivers the loaded goods to the

distributor, it will no longer have possession of the
pallets. Taxpayer retains title to the pallets at all
times.

Jan 25, 1999

Re: TAA 99(A)-003
Sales and Use Tax; Pallets and Containers, Rental
Sections 212.02(14)(c), 212.05(1)(c) and (d), F.S., and
Rule 12A-1.040, Florida Administrative Code
XXX (hereinafter Taxpayer)

Dear :

This is a response to your petition received November 30, 1998,
for the Department's issuance of a Technical Assistance
Advisement ("TAA") concerning the above referenced matter. Your
petition has been carefully examined and the Department finds it
to be in compliance with the requisite criteria set forth in
Rule 12-11, F.A.C. This response to your request constitutes a
TAA and is issued to you under the authority of s. 213.22, F.S.

STATED FACTS

This letter responds to your November 24, 1998 letter, which
presented your request for guidance on the applicability of our
State's sales tax to rentals or leases of pallets/containers
under facts and circumstances you have described, as follows:

[The taxpayer] is in the business of leasing
pallet[s]/containers to manufacturers. The manufacturers
use pallets/containers to ship their products to their
customers. The majority of [the taxpayer's] customers use
both leased and purchased pallet/containers. There is no
difference between the pallet/containers other than how
they are acquired. Both purchased and leased
pallet/containers used by the manufacturers serve exactly
the same function. The price of the manufactured goods

does not change based on whether the manufacturer uses a
leased pallet/container or a purchased pallet/container to
deliver their product.

In addition, the manufacturers intent of one time use for
the pallet/container is the same whether the manufacturers
acquire the pallet/container through purchase or lease to
deliver their product.

... The manufactured items are placed on the pallets and
generally secured with the use of load formers, cornerposts and stretch wrap. The assembled pieces are sold to
customers as one unit load. The manufacturer charges its
customers by the unit price. It does not charge separately
for any of the other items used to ship the product (i.e.,
the cornerposts, the stretch wrap or the
pallets/containers).

[The taxpayer] has a three prong billing system:

1. Manufacturers are initially charged an "issue fee"
   when a pallet/container is sent from [the taxpayer's]
   third party depots to a manufacturer or farmer. This
   is a one-time flat fee charge per container sent.

2. Second, the manufacturer is charged a per day rental
   fee. This rental fee ceases when the manufacturer
   sends their product (on the pallet or in the
   container) to their distributor.

3. Last, the manufacturer is then charged a one-time flat
   fee referred to as a "transfer fee" when the
   manufacturer delivers their product (on/in the
   pallet/container) to the distributor. (Your Emphasis)

After receipt of the goods by the distributor, the
manufacturer ceases all responsibility for the
pallet/container. Arrangements are made between a third
party depot hired by [the taxpayer] and the distributor to
recover the pallet/container... 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.
In some circumstances, the distributor bears the cost of
returning the pallet/container to [the taxpayer's] third
party facilitator. Other times, [the taxpayer] bears the
burden of the cost of retrieving the pallet. However, the
distributors are not billed any rental charges or other
fees from [the taxpayer] other than possibly the
transportation costs of returning the pallets/containers to
the depot.

In primarily all instances, the distributor is barred from
returning the pallet/container to anyone other than the
third party depots. [The taxpayer's] customers do not pay
sales tax on the pallet/containers they purchase, nor do
they pay sales tax on any of the other parts of the unit
load delivered to their customers, i.e.[,] the cornerposts
or stretch wrap, regardless of whether the
pallet/containers involved are leased or purchased.
However, [the taxpayer's] customers are currently paying
sales tax to [the taxpayer] on the leased
pallet/containers. [The taxpayer] leases pallet/containers
to their customers and charge[s] sales tax to their
customers on the rental amount.

Thus, the taxpayer keeps an available supply of pallets to meet
its customers' (various manufacturers) needs. The pallets are
available for daily rental. The manufacturers order the pallets
from the Taxpayer; load the pallets; and then dispatch the
pallets, under load, to various distributors. The distributors
store the loaded pallets at their facility until the goods can
be unloaded. The distributor (not the manufacturer of the
product loaded on the pallet) is required to return the empty
pallets to the Taxpayer. Once the manufacturer delivers the
loaded goods to the distributor, it will no longer have
possession of the pallets. Taxpayer retains title to the pallets
at all times; therefore, the manufacturer never has title to the
pallets.

LAW AND ANALYSIS

Section 212.02 (15) (a), F.S., indicates that a "lease" is a
type or form of "sale." Thus, this situation should be treated
in the same manner as if the Taxpayer were selling, instead of
leasing, pallets to its customers.

Section 212.02(14)(c), F.S. [1997], provides in part:

"Retail sales," "Sale at retail," "use," "Storage," and
"consumption" do not include materials, containers, labels,
sacks, or bags intended to be used one time only for
packaging tangible personal property for sale....

Rule 12A-1.040, F.A.C., states in part that:

(16) The sale of containers which are suitable for more
than one time use is taxable....

(21) Pallets for one time use which are a part of packaging
tangible personal property for shipment and sale are exempt

Under Section 212.02(14)(c), F.S., a taxable retail sale (lease)
is not constituted when there is a sale of materials,
containers, labels, sacks, bags, or similar items intended (a)
to accompany the product sold, as the delivery of the product
would otherwise be impracticable due to the nature of the
product; and (b) to be used one time only for packaging.

A pallet can be deemed to be a "container" (defined by Webster's
Third New International Dictionary as being a receptacle for the
packing or shipment of articles and goods), or at least an item
similar to a container, as the pallet does serve to keep goods
contained for easier shipment and distribution. Pallets clearly
are intended to accompany goods which are very bulky and
unwieldy. The issue here then is whether or not the pallets are
intended to be used one time.

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 looking at this rationale for the one-time use requirement,
it appears that the party who must intend the one-time use is
the manufacturer of the product being shipped. That is, the
manufacturer understands it will not be receiving the container
back, so it goes ahead and builds the cost of the container into
the sales price of the product being held or shipped in the
container. And, indeed, there is some additional case law that
holds that the manufacturers' intent controls when determining
whether pallets are for one-time use. In Mid-Florida Mining
Company v. State of Florida Department of Revenue, Case No. 923l43 (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 that MidFlorida'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 Mid-Florida purchased some used
pallets, and it, on occasion, re-purchased pallets from some
customers.

In the particular instance under consideration, the Taxpayer's
customers (manufacturers) only intend to use the pallets one
time when they ship the product. A manufacturer will not receive
a pallet back once the manufacturer sends the pallet to the
distributor. It will be the distributor who will be responsible
for storing the pallet and then returning it to the Taxpayer.
Thus, at the time a manufacturer places goods on a pallet and
ships them to a distributor, the manufacturer has no intent of

taking possession of that pallet again. Since the lessor retains
title to the pallets at all times, the manufacturer will never
have title to the pallet. The manufacturer will build the rental
charge for the pallet directly into the price it charges to a
customer. That rental charge will be taxed at the time the final
sale of the manufactured product is consummated.

There is nothing in the statute that requires the packaging
materials to be only capable of one-time use in order to receive
the exemption. The statute simply looks to the intent of the
person shipping the product, if the pallet will not come back to
the shipper after the product on which the pallet is loaded is
delivered, then the pallet will be considered as being for onetime use. The court in the Mid-Florida case also recognized this
fact, as the court was made aware that the manufacturer had
purchased used pallets, as well as some pallets that it
previously had sent to customers. Thus, in the instant case, the
fact that the pallets, which are returned to Taxpayer by
customers of the manufacturers, may be re-leased by the Taxpayer
is not of consequence in making a determination as to the
taxability of the leases.

CONCLUSION

Since the Taxpayer's customers (manufacturers) who are leasing
the pallets from the Taxpayer only intended to use the leased
pallets one time for shipping of bulky goods to their customers,
such leases are not subject to tax pursuant to Section
212.02(14)(c), F.S.

This response constitutes a technical assistance advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated upon 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 and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Mr. Joseph D. Franklin III
Technical Assistance and Dispute Resolution
(850) 922-2833

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