Can a jewelry retailer buy the gift boxes it delivers merchandise in tax-free, on the theory the box cost is baked into the item's sales price and the box is effectively purchased for resale?

Plain-English summary

A retailer that purchases boxes to deliver jewelry and other items to its customers asked whether it should have to pay Texas sales tax on those boxes, arguing that since the box cost is effectively "included" in the sales price of the items sold, the boxes are really purchased for resale and should be tax-free.

The Comptroller explained the historical background: prior to October 1, 1991, a retailer genuinely COULD purchase wrapping and packaging supplies tax-free. But effective that date, the Legislature amended the Tax Code specifically to close that door — it repealed former § 151.321 (which had allowed retailers to buy wrapping, packing, and packaging supplies tax-free under an exemption certificate) and added new subsections (c) and (d) to § 151.302 specifically excluding these items from the resale exemption. The letter states plainly that these 1991 changes "made it clear that the Legislature did not intend to exempt any wrapping, packing and packaging supplies bought by retailers." The Comptroller pointed the retailer to Rule 3.314 (governing wrapping, packing, packaging supplies, containers, labels, tags, export packers, and stevedoring materials/supplies) for the current rule.

What this means for you

Retailers who package or box merchandise for customers

You cannot buy gift boxes, wrapping paper, ribbons, or similar packaging supplies tax-free just because their cost is baked into your merchandise pricing. Since the 1991 legislative change, these items are categorically excluded from the resale exemption — pay tax on them like any other business supply.

Jewelry stores, gift shops, and boutique retailers

This is the same underlying doctrine that applies to branded shopping bags: packaging/wrapping materials handed to customers along with merchandise are taxable purchases for the retailer, regardless of how your pricing bundles the cost.

Accountants and tax professionals

The 1991 statutory history here is worth having on hand for any client pushing back on packaging-supply tax bills — pre-1991 practice genuinely allowed tax-free purchases under former § 151.321, so older business owners or long-tenured bookkeepers sometimes carry outdated assumptions. Rule 3.314 is the citable current authority.

Common questions

Q: Can I buy gift boxes or wrapping supplies tax-free since their cost is included in my merchandise price?
A: No. Since October 1, 1991, wrapping, packing, and packaging supplies are specifically excluded from the resale exemption under Tex. Tax Code § 151.302(c) and (d).

Q: Was this always the rule in Texas?
A: No — prior to October 1, 1991, retailers could buy wrapping and packaging supplies tax-free under former § 151.321. The Legislature repealed that provision and closed the exemption effective that date.

Q: Where is the current rule on this topic?
A: 34 Tex. Admin. Code Rule 3.314, covering wrapping, packing, packaging supplies, containers, labels, tags, export packers, and stevedoring materials and supplies.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.302(c), (d) (resale exemption — wrapping/packaging supplies excluded, effective 10/1/1991)
• 34 Tex. Admin. Code Rule 3.314 (Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, Export Packers, and Stevedoring Materials and Supplies)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200005352L

Original ruling text

May 26, 2000

Dear **:

Thank you for your recent letter regarding gift boxes and Texas sales tax.

You stated that your company purchases boxes in which you deliver jewelry and
other items to your customers. You believe that because the cost of the box is
"included" in the sales price of the items you sell, you should not have to pay
Texas sales tax on the boxes when you purchase them. You feel the boxes are
purchased for resale.

Prior to October 1, 1991, a retailer could purchase wrapping and packaging
supplies tax-free. Effective October 1, 1991, the Legislature amended the Tax
Code. The amendments repealed Section 151.321 that had allowed retailers to
buy wrapping, packing and packaging supplies tax free under an exemption
certificate. The amendments added subsections (c) and (d) to Section 151.302
specifically excluding these items from the resale exemption. These changes
made it clear that the Legislature did not intend to exempt any wrapping,
packing and packaging supplies bought by retailers.

I have enclosed a copy of Rule 3.314 "Wrapping, Packing, Packaging Supplies,
Containers, Labels, Tags, Export Packers, and Stevedoring Materials and
Supplies" for your review.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 3-4987, if you have any
questions or need more information. The direct line is 512/463-4987. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Bryant Lomax
Tax Policy Division

cc: Cassandra Blanco, ** Audit