If I provide nontaxable mailing/packaging services (boxing, padding, and shipping items for customers) and pay tax on my own packaging supplies, do I have to charge my customers sales tax on the box, packing materials, labor, and shipping charges?

Subject

Providers Of Nontaxable Mailing/Packaging Services Do Not Collect Sales Tax From Customers On Box, Packing Materials, Labor, Or Shipping Charges

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306015L

Plain-English Summary

A taxpayer who provides mailing services asked the Comptroller how much Texas state and local sales tax was due on two example billings to a customer, using the taxpayer's own Texas business address.

In Example No. 1, the taxpayer billed a customer for the cost of a box ($2.00), bubble wrap and packing peanuts ($1.50), and a shipping charge ($3.00), for a total of $6.50, and reported $0.00 sales tax due. In Example No. 2, the taxpayer added a labor charge for packing ($2.00) to the same box and packing-material costs and shipping charge, for a total of $8.50, again reporting $0.00 sales tax due.

The Comptroller confirmed both examples were correct. Under Rule 3.314(c), a seller of nontaxable services (like mailing services) must itself pay sales tax when it purchases packaging supplies from its suppliers -- the tax is collected further up the supply chain, not from the mailing service's own customers. Because this taxpayer is a provider of nontaxable mailing services, it does not have to collect sales tax from its customers on the box, packing materials, packing labor, or shipping charge shown in either example. The Comptroller noted the answer is based on the facts provided and could change if the facts are different.

What This Means For You

If you run a mailing, packaging, or shipping business

You are treated as the seller of a nontaxable service. You owe sales tax yourself when you buy boxes, bubble wrap, packing peanuts, and similar packaging supplies from your suppliers -- but you do not need to add sales tax to your customer's bill for those supplies, your packing labor, or the shipping charge.

If you are deciding how to bill packaging supplies and labor to customers

Both a bare packaging/shipping bill (box, packing materials, shipping charge) and one that also itemizes a packing labor charge were confirmed nontaxable to the customer in this ruling, as long as you are providing the mailing service itself rather than just selling packaging materials outright.

If facts differ from these examples

The Comptroller's answer here is expressly tied to the specific facts described. If your billing structure, the nature of the service, or how the charges are itemized differs, the tax result could be different, and you should not assume this ruling automatically covers your situation.

Q&A

Q: Does the mailing service provider have to collect sales tax from its customers on packaging supplies like boxes, bubble wrap, and packing peanuts?
A: No. As a provider of nontaxable mailing services, the taxpayer does not have to collect sales tax from customers on these items.

Q: Who does pay sales tax on the packaging supplies, then?
A: The mailing service provider itself pays sales tax on the packaging supplies when purchasing them from its own suppliers, under Rule 3.314(c).

Q: Does adding a labor charge for packing change the answer?
A: No. Example No. 2 added a $2.00 labor charge for packing, and the Comptroller still confirmed $0.00 sales tax was due from the customer, the same as Example No. 1 without the labor charge.

Q: Is the shipping charge itself taxable to the customer?
A: No. In both examples, the shipping charge was included in the total billed to the customer with no sales tax collected.

Q: Can this taxpayer rely on this answer if their facts change?
A: No. The Comptroller stated the opinion is based upon the facts provided, and if there are additional or different facts, the opinion may change.

Original ruling text

June 24, 1993

Dear **:

In your letter of June 18, 1992, you asked what is the Texas state and local
sales tax due on the following two examples using your address in
** Texas:

EXAMPLE NO. 1

1. cost of box $2.00
2. cost bubble wrap, peanuts, etc. $1.50
3. shipping charge $3.00
4. response: sales tax $0.00
   TOTAL $6.50

EXAMPLE NO. 2

1. cost of box $2.00
2. cost of bubble wrap, peanuts, etc. $1.50
3. labor charge for packing $2.00
4. shipping charge $3 00
5. response: sales tax $0.00
   TOTAL $8.50

Rule 3.314 (c) states that the seller of nontaxable services must pay sales tax
on the purchase of packaging supplies to suppliers. As a provider of nontaxable
mailing services, you do not have to collect tax from your customers as shown
in the above examples.

The opinion is based upon the facts provided. If there are additional or
different facts, the opinion may change.

If you have any questions, please call 1-800-252-5555 toll free or our direct
number is 512/463-4600. My direct number is 512/475-0892. You may write me at
Comptroller of Public Accounts, Tax Administration Division, Austin TX
78774-0100.

Sincerely,

John J. Fitzgibbons
Tax Administration Division