Are corrugated point-of-sale display materials sold with a product exempt as packaging, or are they taxable — and does it matter whether the display is a separate insert or part of the shipping carton?

Plain-English summary

A carton manufacturer designs and sells corrugated point-of-sale display materials to product manufacturers (for example, a pet food maker). The display travels with the product and is transferred to the supermarket when it buys the goods, where it's used to house and display the product. M.R. Weiser & Co. (CPAs) asked whether these displays are exempt packaging or taxable.

The Department drew the line at whether the display is part of the shipping carton or a separate piece.

• The exemption. Tax Law § 1105(a) taxes tangible personal property, but § 1115(a)(19) exempts "cartons, containers, and wrapping and packaging materials and supplies," defined in 20 NYCRR § 528.20(b)(1) (boxes, cartons, and the like actually transferred with the product to the purchaser).
• The rule. A carton used to ship a product and subsequently used to display it is exempt packaging under § 1115(a)(19) — its later display use doesn't matter. But an item that is neither packing material nor an integral part of the carton containing the product is outside § 1115(a)(19) and taxable.
• Type 1 — separate insert display: TAXABLE. A "riser" inserted into the box that the supermarket removes and re-attaches as a display is a separate piece, not the shipping carton — so it's subject to sales and use tax when sold by the carton manufacturer.
• Type 2 — the shipping box's own unfolding lid: EXEMPT. Where the box used to ship the product has a lid that unfolds into a display, that display is part of the shipping carton, so it's exempt under § 1115(a)(19) when sold by the carton manufacturer.

What this means for you

Packaging exemption turns on whether the display IS the shipping carton. In New York, a box that ships a product and later doubles as a display keeps its exempt packaging status. But a stand-alone display element — even one sold and shipped with the product — is taxable tangible personal property because it isn't the container and isn't an integral part of it.

Design and invoice accordingly. If a display is built into the shipping carton (like a fold-out lid), it can qualify for the § 1115(a)(19) exemption. A separate insert or riser that merely rides along in the box does not.

The later use doesn't rescue a separate piece. The exemption looks at what the item is (packaging vs. a distinct display), not at the fact that both end up promoting the product on a store shelf.

Common questions

Q: We sell corrugated store displays with the product. Are they exempt packaging in New York?
A: Only if the display is the shipping carton itself (or an integral part of it) — for example, a box whose lid unfolds into a display. That's exempt under § 1115(a)(19).

Q: What about a separate display insert that goes inside the box?
A: That's taxable. A riser or insert that isn't the container or an integral part of it falls outside the packaging exemption, even though it's transferred with the product.

Q: Does it help that the display is used to promote the product at retail?
A: No. The exemption depends on whether the item is packaging, not on its promotional use.

Citations and references

Statute and regulation:

• Tax Law § 1105(a) — imposes sales tax on retail sales of tangible personal property
• Tax Law § 1115(a)(19) — exempts cartons, containers, and wrapping and packaging materials and supplies
• 20 NYCRR § 528.20(b)(1) — defines "packaging material" (boxes, cartons, and similar items actually transferred with the product to the purchaser); a shipping carton later used as a display remains exempt, but a display that is neither packing material nor an integral part of the carton is taxable

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(19)S
Sales Tax
February 29, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S871013A

On October 13, 1987, a request for Advisory Opinion was received from M.R. Weiser & Co.,
C.P.A.'s, 535 Fifth Avenue, New York, New York 10017.
Petitioner requests an opinion as to the application of sales tax to certain types of tangible
personal property used for and in packaging.
Petitioner describes the transactions as follows:
A carton manufacturer designs and sells point of sale display materials made out of
corrugated packaging materials. The displays are used by stores such as supermarkets to favorably
display products which they sell. The carton manufacturer sells the displays to the manufacturers of
the products which are sold in supermarkets. A supermarket obtains the display when it purchases
the products which it sells. For example, the display material could be sold to a pet food
manufacturer. The display is ultimately transferred to the supermarket when it buys pet food for sale
to its customers. The display is used by the supermarket to house and display the product, which is
the pet food.
Two distinct types of displays are sold, both of which are transferred to the purchaser. One
type is inserted into the boxes in which the pet food is packaged. The supermarket --­
(1)
(2)
(3)
(4)

opens the boxes;
removes the display;
attaches the display to the box; and
places the box in the view of the shoppers.

The product remains in the same boxes that were used for shipment to the supermarket. The
riser which had been inserted in the box, is removed from the box and is attached as a display for the
purpose of attracting the attention of the public.
A second type of display is as follows: The product, for example pet food, is shipped to the
supermarket in boxes. The boxes are first used for the purpose of packaging and shipping the
product. The secondary use of the box is as a display. The lid of the box itself unfolds into an
attractive display for the purpose of displaying the product in the supermarket. Unlike the first type
of display the second type is not a separate piece which is inserted into the box. It is a part of the box
used for shipping the product, although it is also used to display the product.
Section 1105(a) of the Tax Law imposes a tax on the sale of tangible personal property while
§1115(a)(19) exempts "[c]artons, containers, and wrapping and packaging materials and supplies..."
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCClA, DIRECTOR

-2­
TSB-A-88(19)S
Sales Tax
February 29, 1988
Section 528.20(b)(1) of the sales tax regulations defines packaging material:
(b) Definitions. (1) Packaging material includes, but is not limited to: bags,
barrels, baskets, binding, 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, twine, wax paper and wrapping paper actually
transferred with the product to the purchaser.
A carton which is used to ship a product and which is subsequently used to display
that product is considered packaging material which is exempt under §1115(a)(19) of the Tax
Law notwithstanding its subsequent use as a display. Any tangible personal property such as
a display, which is neither packing material nor an integral part of the carton that contains
the product, does not fall within the scope of §1115(a)(19) and is therefore subject to tax.
Accordingly, the first type of display described above is subject to sales and use tax
when sold by the carton manufacturer while the second type of display described above is
exempt from sales and use tax pursuant to section 1115(a)(19) of the Tax Law when sold by
the carton manufacturer.

DATED:

February 29, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.