Does a printing company owe Texas sales tax on repairs to the paper roll cores used on its printing equipment?

Plain-English summary

A printing company asked the Comptroller whether repairs to the cores of its large (2,000 lb.) paper rolls were taxable. The taxpayer's reasoning was that since the cores themselves are exempt as packaging material, repairing them should be exempt too.

The Comptroller disagreed. The cores are only exempt from tax as packaging material when they belong to a manufacturer that is shipping product wrapped on that packaging — that manufacturer isn't the end user of the core, so the exemption applies to them. But this taxpayer is a printing company that uses the cores on its own equipment; it isn't reselling the cores or the paper on them as packaging to someone else. Because the printer is the end user of the cores rather than a reseller, the packaging exemption doesn't apply to it, and sales tax is due on the charges to repair the damaged cores.

The letter notes this conclusion is based on the specific facts presented, and that other, similar-looking facts could produce a different result.

What this means for you

Printing and manufacturing businesses

If your business consumes materials or components (like paper roll cores) as part of running your own equipment — rather than reselling them or shipping them out as packaging around a product you sell — those items and any repairs to them are generally taxable to you. The packaging exemption travels with the party that is actually shipping product to a customer on that packaging, not with every business that happens to handle the packaging material downstream.

Accountants and tax professionals

This ruling is a useful illustration of how the wrapping/packaging exemption is tied to the specific role of the party using the item (manufacturer/shipper of goods vs. downstream user), not the item's inherent character. A component that is exempt in one party's hands (the manufacturer that ships on it) can be fully taxable — including any repair labor and parts — in another party's hands (a printer that merely uses it as production equipment).

Common questions

Q: Why are the paper roll cores exempt for some businesses but not this printing company?
A: The exemption for packaging material applies to the manufacturer that ships its product wrapped on or in that packaging. The printing company in this ruling isn't shipping a product to customers on these cores — it's using the cores as part of its own printing equipment and isn't holding them for resale, so the exemption doesn't apply to it.

Q: Does that mean repairs to the cores are taxable?
A: Yes. Because the exemption itself doesn't apply to the printing company, sales tax is due on the charges to repair the damaged cores.

Q: Could a different printing company get a different answer?
A: Possibly. The letter explicitly states the opinion is based on the facts presented, and that other facts, even if similar, may produce a different result.

Citations and references

No statutes or rules are cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1222C11

Original ruling text

February 16 1993

Dear ****:

This is in response to your letter concerning the taxability of repairs
to paper roll cores.

SITUATION: Taxpayer operates a printing company that uses large 2000 lb.
rolls of paper. The cores of these rolls are sometimes damaged, having to
be repaired since the core will not fit correctly on the equipment,
and/or will not work in that condition due to the exactness required.

QUESTION: Since the core is non-taxable as packaging of raw materials,
would repair to the core be non-taxable as well.

RESPONSE: Sales tax is due on repairs to the damaged cores. The cores
are exempt as packaging material only to the manufacturer, not to the
printing company, and are not held for resale by the printing company.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call me at
1-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You
may also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division