Does a Texas grocery store owe sales tax on the trays, film, and other wrapping supplies its meat department uses to package meat it cuts, trims, or grinds?

Plain-English summary

A grocery store chain asked the Comptroller how Rule 3.314 applies to the wrapping and packaging supplies its meat departments use — specifically foam trays and shrink wrap. The store's meat departments cut, trim, or grind all the meat they repackage, and occasionally also use the same trays and shrink wrap to repackage broken packages received from suppliers.

The Comptroller ruled that a meat department that cuts, trims, or grinds whole meat into products like ground meat, roasts, and steaks is "processing" that meat for purposes of the sales and use tax. Because of that, the meat department can issue an exemption certificate instead of paying tax when it buys trays, film, meat pads, butcher paper, freezer paper, or other wrapping and packaging supplies used to package meat it processed.

However, that tax-free treatment only extends to supplies used for meat the department actually processed. If the same trays or shrink wrap are used to repackage broken packages of meat that were not processed in-store, the department owes sales tax on those particular supplies.

What this means for you

Grocery store and meat department owners

If your in-store meat department cuts, trims, or grinds meat before repackaging it, you can buy the trays, film, meat pads, butcher paper, and freezer paper used for that packaging tax-free by giving your supplier an exemption certificate. But you need to separately track and pay sales tax on any wrapping supplies used only to repackage meat that came in already processed or in broken supplier packages, since that use doesn't qualify for the exemption.

Accountants and tax professionals

The key distinction in this ruling is between packaging supplies used for meat processed in-store (exempt under Rule 3.314) versus packaging supplies used for meat not processed by the department (taxable). If a client's meat department uses the same type of supply for both purposes, you may need to help them separate purchases or accrue use tax on the portion used for unprocessed meat.

Common questions

Q: Can a grocery store's meat department buy shrink wrap and trays tax-free?
A: Yes, but only for packaging meat the department itself processed (cut, trimmed, or ground). The department can issue an exemption certificate for those purchases.

Q: What if the meat department just repackages broken packages from a supplier without processing them?
A: Supplies used to repackage meat that the department did not process are taxable. The department should pay sales tax on those supplies.

Q: What counts as "processing" for this purpose?
A: The ruling describes processing as taking whole meat and grinding and cutting it into different types of meat products, such as ground meat, roasts, or steaks.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.314 (the only rule cited in this letter; it governs wrapping and packaging 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/9303971L

Original ruling text

March 9, 1993

Dear **:

Thank you for your recent letter requesting an interpretation of Rule 3.314 as
it applies to packaging supplies used in your store's meat departments.

Your stated that your store's meat departments perform some processing
activities, such as cutting, trimming, or grinding on all meat the departments
repackage. The stores use foam trays and shrink wrap to package the meat after
it has been processed. In rare instances, the departments use the foam trays
and shrink wrap to repackage broken packages from suppliers.

Response: For the purposes of the Texas sales and use tax, a meat department is
"processing" in that the department takes whole meat and grinds and cuts it
into different types of meat products, such as ground meat, roast, steaks, etc.
The meat departments of your stores may issue suppliers exemption certificates
in lieu of tax when purchasing trays, film, meat pads, butcher paper, and
freezer paper, or any other wrapping and packaging supplies used to package
processed meat.

The meat departments should, of course, pay sales tax on any supplies used to
package meat not processed by the departments.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, extension 3-4633. The regular number is 512/463-4633. You
may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division