Does a company that sells molded pulp packaging (like protective boxes and cartons) to businesses who use it to package and ship their own products for sale owe Illinois Retailers' Occupation Tax on those packaging sales?

Plain-English summary

A company that designs and sells molded pulp packaging (similar to egg cartons, used both for retail packaging and as protective shipping material) asked the Illinois Department of Revenue whether its packaging sales are exempt from Retailers' Occupation Tax under 86 Ill. Adm. Code 130.2070. The company's customers range from small businesses to large global companies, who use the packaging to contain and ship their own products, including food and consumer goods, for resale.

The Department declined to issue the requested Private Letter Ruling (it found the question already answered by an existing regulation) but issued this General Information Letter explaining the applicable rule. Under 86 Ill. Adm. Code 130.2070(b)(1)-(2), a seller of containers, wrapping, and packing materials is treated as making a sale for resale — not subject to Retailers' Occupation Tax — when the purchaser of the container also transfers ownership of that container to its own customers together with the tangible personal property packaged inside it. The regulation's own example: selling fruit boxes to a packer who fills them with fruit and sells the fruit in those boxes is a sale of the boxes for resale.

The letter also reiterates the general framework: Illinois Retailers' Occupation Tax applies to retail sales of tangible personal property (86 Ill. Adm. Code 130.101), and a companion Use Tax applies to property purchased at retail for use in Illinois (35 ILCS 105/3; 86 Ill. Adm. Code 150.101). But a sale for resale is not taxable as long as the purchaser furnishes the seller a Certificate of Resale (35 ILCS 120/2c; 86 Ill. Adm. Code 130.1405). The GIL does not resolve the taxpayer's account-closure or filing-status questions directly — it points the taxpayer to the regulation and the Department's website for further guidance.

What this means for you

Packaging and container manufacturers/sellers

If you sell containers, boxes, wrapping, or packing materials to customers who will use them to hold and ship their own products for sale to others, those sales can qualify as exempt sales for resale — but only if the purchaser actually transfers ownership of the container along with the goods inside, and only if you obtain a Certificate of Resale from the purchaser under 86 Ill. Adm. Code 130.1405. Without a resale certificate on file, the Department can still look to tax the transaction.

Businesses that purchase packaging to ship their own products

If you buy boxes, cartons, or wrapping materials that you pass along to your own customers together with the product inside, you should give your packaging supplier a Certificate of Resale rather than paying sales tax on the packaging purchase, since that container is treated as part of the resold product rather than a taxable supply used by your business.

Accountants and tax professionals

This GIL is a straightforward pointer to 86 Ill. Adm. Code 130.2070, which defines "containers" broadly (containers, wrapping and packing materials, bags, twines, container handles, wrapping papers, gummed tapes, cellophane, boxes, bottles, drums, cartons, sacks, and similar materials) and turns the resale-exemption analysis on whether ownership of the container transfers to the end customer along with the goods inside. Note that the Department declined to issue a binding Private Letter Ruling here because it considered the regulation dispositive — a good reminder that GILs, unlike PLRs, are not binding on the Department.

Common questions

Q: Is the sale of containers, wrapping, and packing materials always exempt from Illinois sales tax?
A: No. It is exempt from Retailers' Occupation Tax as a sale for resale only when the purchaser of the container transfers ownership of that container to its own customers along with the tangible personal property packaged inside, and the purchaser provides the seller a valid Certificate of Resale under 86 Ill. Adm. Code 130.1405.

Q: What is an example of a qualifying resale of packaging?
A: The regulation's own example, quoted in this letter: a sale of fruit boxes to a packer who fills the boxes with fruit and sells the fruit in those boxes is a sale of the boxes to the packer for resale, and is not subject to Retailers' Occupation Tax. 86 Ill. Adm. Code 130.2070(b)(1)-(2).

Q: Did the Department issue a binding Private Letter Ruling on this question?
A: No. The taxpayer requested a PLR, but the Department declined under 2 Ill. Adm. Code 1200.110(a)(3)(D), because it considered the question already answered by existing regulations (86 Ill. Adm. Code 130.2070). It issued this GIL instead, which merely directs the taxpayer to the relevant regulation and is not binding on the Department.

Q: What counts as a "container" under this regulation?
A: 86 Ill. Adm. Code 130.2070(a) defines it broadly to include "all containers, wrapping and packing materials, bags, twines, container handles, wrapping papers, gummed tapes, cellophane, boxes, bottles, drums, cartons, sacks or other packing, packaging, containing and wrapping materials in which tangible personal property may be contained."

Q: If our packaging sales qualify as exempt resales, do we still need to file Illinois sales tax returns?
A: The letter does not directly answer this account/filing-status question; it directs the taxpayer to the Department's regulations and website (www.tax.illinois.gov) or the Taxpayer Information Division at (217) 782-3336 for further guidance on that point.

Citations and references

Statutes and regulations:

• 86 Ill. Adm. Code 130.2070 (sales of containers, wrapping and packing materials and related products; resale rule and definition of "containers")
• 86 Ill. Adm. Code 130.101 (imposition of Retailers' Occupation Tax on retail sales of tangible personal property)
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101 (imposition of Use Tax)
• 35 ILCS 120/2c; 86 Ill. Adm. Code 130.1405 (Certificate of Resale required for a sale-for-resale exemption)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures; Department's discretion to decline a PLR request)
• 2 Ill. Adm. Code 1200.120 (General Information Letters; not binding on the Department)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0026-gil.pdf

Original ruling text

ST-22-0026-GIL 11/02/2022 SALE FOR RESALE
This letter discusses the Department’s regulation for sales of containers,
wrapping and packing materials and related products as set forth at 86 Ill. Adm.
Code 130.2070. (This is a GIL.)
November 2, 2022

NAME/ADDRESS
Dear Ms. XXX:
This letter is in response to your letter dated July 25, 2022, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer
inquiries concerning the application of a tax statute or rule to a particular fact situation.
A PLR is binding on the Department, but only as to the taxpayer who is the subject of
the request for ruling and only to the extent the facts recited in the PLR are correct and
complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General
Information Letter (“GIL”) is to direct taxpayers to Department regulations or other
sources of information regarding the topic about which they have inquired. A GIL is not
a statement of Department policy and is not binding on the Department. See 2 Ill. Adm.
Code 1200.120. You may access our website at www.tax.illinois.gov to review
regulations, letter rulings and other types of information relevant to your inquiry.
The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling
request is within the discretion of the Department. The Department will respond to all
requests for private letter rulings either by issuance of a ruling or by a letter explaining
that the request for ruling will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). Further,
the Department’s regulations regarding Private Letter Rulings provide that “[i]f there is
case law or there are regulations dispositive of the subject of the request, the
Department will decline to issue a letter ruling on the subject.” 2 Ill. Adm. Code
1200.110(a)(3)(D). The Department recently met and determined that it is declining to
issue a Private Letter Ruling in response to your request. We hope, however, the
following General Information Letter will be helpful in addressing your questions. In your
letter you have stated and made inquiry as follows:

We believe that our products are exempt from Illinois sales and use tax
based on: "TITLE 86: REVENUE PART 130 RETAILERS' OCCUPATION
TAX Section 130.2070 Sales of Containers, Wrapping and Packing
Materials and Related Products". We are requesting a Private Letter
Ruling.

COMPANY/NAME
Page 2
November 2, 2022
We only recently learned about the possible exemption and we are current
with all prior sales & use tax filings. We are requesting the Private Letter
Ruling for all future tax filings.
Our Products:
Our business designs and sells molded pulp packaging at 3rd party
contract manufactures outside of Illinois. This type of packaging is similar
to egg cartons and is used to package products for retail sales and as
protective packaging during shipping. Please see our website ADDRESS2
for more information.
Our Customers:
Our customers range from small businesses to large global companies.
We sell small quantities on our website and larger quantities via
wholesale. Our packaging is used to package a wide range of products for
resale, including foodstuff and consumer products.
Tax Exempt Product Type:
We believe that our products are tax exempt based on: “TITLE 86
REVENUE PART 130 RETAILERS’ OCCUPATION TAX Section
130.2070 Sales of Containers, Wrapping and Packing Materials and
Related Products"
b)

Sales for Resale
1)

Sellers of containers to purchasers who sell tangible
personal property contained in such containers to others are
deemed to make sales of such containers to purchasers for
purposes of resale, the receipts from which sales are not
subject to the Retailers' Occupation Tax, if the purchasers of
such containers transfer the ownership of the containers to
their customers together with the ownership of the tangible
personal property contained in such containers.

Please let us know if you need any additional information to review our
request.
If our product type qualifies for exemption, please advise if we still need to
file returns with My Tax Illinois or if we should close our account.
DEPARTMENT’S RESPONSE:
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property to purchasers for use

COMPANY/NAME
Page 3
November 2, 2022
or consumption. 86 Ill. Adm. Code 130.101.
The tax is measured by the seller's
gross receipts from retail sales made in the course of such business. Id. In Illinois, Use
Tax is imposed on the privilege of using, in this State, any kind of tangible personal
property that is purchased anywhere at retail from a retailer. 35 ILCS 105/3; 86 Ill. Adm.
Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
However, the sale of tangible personal property for the purpose of resale is not
taxable so long as the purchaser provides the seller with a Certificate of Resale in
accordance with 86 Ill. Adm. Code 130.1405. 35 ILCS 120/2c; 86 Ill. Adm. Code
130.1405.
Sellers of containers to purchasers who sell tangible personal property
contained in such containers to others are deemed to make sales of such containers
to purchasers for purposes of resale, the receipts from which sales are not subject to
the Retailers' Occupation Tax, if the purchasers of such containers transfer the
ownership of the containers to their customers together with the ownership of the
tangible personal property contained in such containers. For example, a sale of fruit
boxes to a packer who fills the boxes with fruit and sells the fruit in such boxes is a sale
of the boxes to the packer for resale by him. 86 Ill. Adm. Code 130.2070(b)(1)-(2).
“Containers” includes all containers, wrapping and packing materials, bags,
twines, container handles, wrapping papers, gummed tapes, cellophane, boxes,
bottles, drums, cartons, sacks or other packing, packaging, containing and wrapping
materials in which tangible personal property may be contained.
86 Ill. Adm.
Code 130.2070(a).
I hope this information is helpful. If you require additional information, please
visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.

Very truly yours,

Katarzyna Kowalska
Associate Counsel
KK:rkn