Are labels and tags sold to manufacturers and retailers, which they attach to products or to packaging, exempt from New York sales tax as either a resale or as packaging material?

Plain-English summary

Century Marketing manufactures custom labels and tags and sells them to over seventy thousand customers across more than thirty states, with an average sale of about $300. It asked the Department whether receipts from nine categories of labels and tags -- ranging from product-description labels affixed by manufacturers, to retailer name/address labels, to oil-change reminder stickers, to price tags -- are subject to New York sales tax when its customers buy the labels and attach them to products or to the containers/bags/boxes those products are sold in.

The Department applied two separate, independent tests. First, a label or tag can be purchased tax-free as a "resale" if it becomes a critical element of the product sold to the end consumer -- meaning some quality useful to the final customer survives the sale, rather than the label just being overhead the seller uses to run its business. Second, separately, a label or tag can be exempt as packaging material if it's actually used to enclose, cover, or protect the product and is transferred to the purchaser along with the product.

Applying those tests scenario by scenario: labels or tags that identify, describe, or provide product information (including the maker's name/address/phone number) generally are a critical element of the product and can be bought for resale with a proper resale certificate -- but labels that just carry size, style, lot, or inspection numbers are not, unless they're permanently attached. The same critical-element logic applies to retailer-affixed product-description labels, but a label carrying only the retailer's own name/address/phone number doesn't qualify unless permanently attached. Oil-change reminder stickers on windshields don't qualify for either exemption -- they're a convenience to the service provider, not a critical product element or packaging. Address labels and genuine handling instructions like "FRAGILE -- HANDLE WITH CARE" on containers count as exempt packaging material, and information labels (expiration dates, ingredients, instructions) can qualify as a critical product element for resale -- but loss-prevention tags and plain price tags/UPC labels don't qualify for either exemption regardless of what other information they might carry, because they exist to help the seller run its business (security, inventory, pricing), not to inform the ultimate customer about the product itself.

What this means for you

Label and tag manufacturers selling to other businesses

Whether you can sell a label tax-free depends entirely on its actual function for the end customer, not on who buys it or how it's described in your catalog. Get a properly completed Resale Certificate (Form ST-120) whenever your customer will attach the label as a critical product element or as genuine packaging, and charge tax on anything functioning as a price tag, loss-prevention tag, or a service reminder.

Manufacturers and retailers buying labels, tags, or stickers

Don't assume every label attached to your product or its packaging is tax-exempt. Product-description and ingredient/instruction labels usually qualify; your own store's price tags, security tags, and service-reminder stickers generally do not, even if they carry some product information alongside their main function.

Accountants and tax professionals

This ruling reaffirms the "critical element" test from Celestial Food of Massapequa Corp. v. State Tax Comm. and Matter of Burger King v. State Tax Comm. for the resale exclusion, applied independently from the packaging-materials exemption under Tax Law § 1115(a)(19) and 20 NYCRR § 528.20(b)(1) -- a label can qualify under either test, both tests, or neither, depending on its actual function.

Common questions

Q: Can a manufacturer buy product-description labels tax-free to attach to its products?
A: Yes, generally, with a properly completed resale certificate -- those labels are usually a critical element of the finished product sold to the consumer.

Q: Are a retailer's own price tags exempt as packaging material or as a resale?
A: No. Price tags and price labels exist to help the retailer sell and track inventory, not to inform the end customer about the product, so they don't qualify for either exemption.

Q: Are "FRAGILE -- HANDLE WITH CARE" labels on shipping containers taxable?
A: No, if they're actually transferred to the customer with the product -- they qualify as exempt packaging material.

Q: Does this ruling apply to the labels or tags my business buys or sells?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Whether a specific label is a "critical element" of your product is a fact-specific determination.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_18s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(18)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970421B

On April 21, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Century Marketing, P.O. Box 1087, Bowling
Green, OH 43402.
The issues raised by Petitioner, Century Marketing, are whether the
receipts from its sales of each of the following types of labels and tags that
are affixed or attached by Petitioner’s customers to their products or to the
containers, bags or boxes that are transferred by them to their customers along
with the products at the time the products are purchased are subject to New York
State and local sales and compensating use taxes.
1.

Labels or tags that are affixed or attached to the
product by the producer or manufacturer of the product
and that identify, describe or provide information about
the product.

2.

Labels or tags that are affixed or attached to the
product by the retailer of the product and that
identify, describe or provide information about the
product.

3.

Labels or tags that are affixed or attached to the
product by its producer or manufacturer and that have
the name and/or address and/or telephone number of the
producer or manufacturer of the product.

4.

Labels or tags with the retailer's name, address and/or
telephone number that are affixed or attached to the
product.

5.

Labels that are affixed to car windshields to remind
customers of the time of their next oil change.

6.

Any label or tag, regardless of function, affixed or
attached to a container, bag or box that holds the
product being sold to the customer, at retail, and that
is transferred, along with the product, to the customer
at the time of sale.

7.

Labels or tags affixed or attached to a container, bag
or box that is transferred, along with the product, to
the customer at the time of sale, where the label or tag
has the retailer's name and/or address and/or telephone
number.

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8.

Labels or tags affixed or attached by the retailer to a
container, bag or box, that is transferred along with
the product at the time of sale to the retailer’s
customer, where the label or tag identifies, describes
or has information regarding the product contained
within the container.

9.

Price tags or labels that are affixed or attached to
products or containers and that may also display product
related and/or seller related information.

Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is a manufacturer of custom labels and tags. Petitioner is
located in Bowling Green, Ohio and sells labels and tags in over thirty states.
While Petitioner has over seventy thousand customers, Petitioner’s average sale
to its customers is only around $300.00.
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes a tax on the “receipts from every
retail sale of tangible personal property . . . . ”
Section 1101(b)(4)(i) of the Tax Law defines “retail sale,” in part, as
follows:
A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical
component part of tangible personal property, or (B) for use by that
person in performing the services subject to tax under paragraphs
(1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five.
With respect to the resale exclusion, Section 526.6(c) of the Sales and Use
Tax Regulations provides, in part:
(1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to
sell, either in the form in which purchased, or as a component part
of other property or services, the property or services which he has
purchased will be considered as purchased for resale and therefore
not subject to tax until he has transferred the property to his
customer.
(2)
A sale for resale will be recognized only if the vendor
receives a properly completed resale certificate . . . .
(3) Receipts from the sale of property purchased under a resale
certificate are not subject to tax at the time of purchase by the
person who will resell the property. The receipts are subject to
tax at the time of the retail sale.

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Section 1115(a)(19) of the Tax Law exempts from tax receipts from the sale
of “cartons, containers, and wrapping and packaging materials and supplies, and
components thereof for use and consumption by a vendor in packaging or packing
tangible personal property for sale, and actually transferred by the vendor to
the purchaser.” (Emphasis added)
Section 528.20(b)(1) of the Sales
“packaging material,” in part, as follows:

and

Use

Tax

Regulations

defines

“Packaging material” includes, but is not limited to:
. . . boxes . . . cartons . . . coating . . . gummed labels . . . .
(emphasis added)
Opinion
Purchases of labels or tags may, in some cases, be excluded from tax as
purchases for resale. The applicable test to determine whether a label or tag
is purchased for resale is whether the label or tag purchased at wholesale forms
a critical element of the product sold at retail to the consumer (see Celestial
Food of Massapequa Corporation v. State Tax Comm., 63 NY2d 1020; Matter of Burger
King v. State Tax Comm., 51 NY2d 614, 623; Matter of Gem Stores, Inc., Tx App
Trib, October 14, 1988, TSB-D-88(30)S.)
Whether an item becomes a critical
element of the product sold at retail depends upon whether a critical quality
useful to the final customer survives the sale at wholesale and is not just an
expense or part of the general overhead which the retailer chooses in order to
carry on its business profitably. (See Faith L. Levine, Adv Op Comm T & F, April
24, 1997, TSB-A-97(28)S.)
In addition, labels or tags may, under certain
circumstances, constitute packaging material and, therefore, be exempt under
Section 1115(a)(19) of the Tax Law, but only to the extent that a vendor uses the
materials to enclose, cover, envelop or tightly protect the product, and the
packaging material is actually transferred by the vendor to the purchaser with
the product being sold. Gummed labels within the meaning of packaging materials
would include adhesive address labels and warning stickers indicating "FRAGILE HANDLE WITH CARE" and the like. (See Faith L. Levine, supra.) Petitioner can
sell any of the labels and tags described in examples 1 through 9 above, for
resale, to a person who or which will resell them to the person who will affix
or attach them in the manner described in such examples, provided that Petitioner
receives a properly completed Resale Certificate, Form ST-120, from its customer.
The following analysis assumes that Petitioner itself sells labels and tags
to the person who or which will affix or attach the labels or tags in the manner
described in examples 1 through 9. The analysis also assumes that the producer
or manufacturer is not also the retailer.
Accordingly, the labels and tags described in examples 1 and 3 that are
affixed or attached to the product by the producer or manufacturer of the product
that identify, describe or provide information about the product, or provide the
name and/or address and/or telephone number of the producer or manufacturer of
the product, are considered to be a critical element of the product sold to the

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consumer. Therefore, the manufacturer or producer may purchase such labels or
tags for resale, provided that the purchaser furnishes a resale certificate to
Petitioner. However, labels or tags which specify size, style, lot or inspection
numbers are not considered to be a critical element of the product sold to the
customer, and may not be purchased for resale if they are not permanently
attached to the product.
(See Publication 852, Sales Tax Information For:
Manufacturers, Processors, Generators, Assemblers, Refiners, Miners and
Extractors, Other Producers of Good and Merchandise, (12/97)).
Labels and tags described in example 2 that are affixed or attached to the
product by the retailer that identify, describe or provide information about the
product, are also considered to be a critical element of the product sold to the
consumer. Therefore, the retailer may purchase such labels or tags for resale,
provided that the purchaser furnishes a resale certificate to Petitioner.
However, labels or tags which contain the retailer’s name, address and/or
telephone number as described in example 4, are not considered to be a critical
element of the product sold to the customer, and may not be purchased for resale
if they are not permanently attached to the product.
As for example 5, labels affixed to car windshields (presumably by an
automotive service provider) to remind customers of the time and date of their
next oil change may not be purchased for resale since their use by the service
provider as a reminder to customers does not suffice to make them a critical
element of the product or service sold. Such labels do not constitute packing
or packaging materials. Thus, the exemption under Section 1115(a)(19) of the Tax
Law cannot apply.
With respect to examples 6, 7 and 8, not all labels and tags, regardless
of their function, affixed or attached to a container, bag or box that holds a
product for sale to a customer are packaging or may be purchased for resale. For
example, loss prevention labels or tags may not be purchased by a retailer exempt
from tax either as packaging material or as a purchase for resale. See Matter
of Gem Stores, supra.
Manufacturers, however, may purchase loss prevention
labels for resale to wholesalers or retailers. (See Faith L. Levine, supra.)
Address labels attached to containers, bags or boxes (including the retailer's
address labels described in example 7), or labels that provide handling
instructions like "FRAGILE - HANDLE WITH CARE," are considered packaging material
and may be purchased exempt from tax. In addition, labels and tags that form a
critical element of the product being sold may be purchased for resale. This
would include labels and tags that provide information such as expiration dates,
ingredients, contents or instructions, and not simply pricing stickers such as
UPC symbols or labels and tags that say "paid".

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Concerning example 9, price tags and price labels affixed to the product
are not a critical element of the products sold and do not add to their value.
They are affixed to the product by the vendor solely for use in selling the
products and recording the sales for inventory purposes. Therefore, price tags
and price labels are not packaging material and may not be purchased for resale,
regardless of any additional information included in the tags. (See Morton L.
Coren, Adv Op Comm T & F, March 31, 1992, TSB-A-92(29)S.)

DATED: March 24, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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