Can a Texas manufacturer buy external packaging supplies like corrugated void-filler and air bags tax free?

Subject

Manufacturer — External Packaging Supplies (Corrugated Void — Filler, Air Bags) Used During Shipment Of Manufactured Products

Plain-English summary

A taxpayer wrote to the Comptroller asking about the wrapping and packaging exemption for manufacturers. The Comptroller confirmed that a manufacturer may buy both internal and external wrapping, packing, and packaging supplies tax free, as long as those supplies are used as part of completing the manufacturing process and the manufacturer gives the vendor a properly completed exemption certificate. The letter cites Rule 3.314(a)(4) and (b)(1) as the basis.

Applying that rule, the Comptroller specifically confirmed that a manufacturer may issue an exemption certificate to buy external packaging supplies -- including corrugated void-filler and air bags -- used in packaging manufactured products during shipment.

The letter notes this opinion is based on the facts submitted, and other facts, though similar, may yield different results.

What this means for you

Manufacturers

If you package finished products for shipment using materials like corrugated void-filler or air bags, you can buy those supplies tax free by giving your vendor a properly completed exemption certificate, so long as the supplies are used as part of completing the manufacturing process -- this covers external packaging, not just internal wrapping.

Accountants and tax professionals advising manufacturing clients

When reviewing a manufacturing client's packaging purchases, check whether an exemption certificate was issued under Rule 3.314(a)(4) and (b)(1). This letter treats external shipping-protection materials (void-filler, air bags) the same as internal wrapping and packing supplies for exemption purposes.

Packaging suppliers selling to manufacturers

Be prepared to accept a manufacturer's exemption certificate for external packaging items like void-filler and air bags used to protect products during shipment -- the Comptroller has confirmed these qualify under the wrapping and packaging exemption.

Common questions

Q: Does the manufacturing packaging exemption cover only internal packaging, or external packaging too?
A: Both. The letter states a manufacturer may purchase tax free "internal and external wrapping, packing, and packaging supplies" used as part of completing the manufacturing process.

Q: What do I need to give my vendor to buy these supplies tax free?
A: A properly completed exemption certificate.

Q: Are corrugated void-filler and air bags specifically covered?
A: Yes -- the letter specifically confirms a manufacturer may give an exemption certificate for external packaging supplies "including corrugated void-filler and air bags used in packaging manufactured products during shipment."

Q: Could this answer change under different facts?
A: Yes. The letter states the opinion is based on the facts submitted, and other facts, though similar, may yield different results.

Citations and references

Rules:

• Rule 3.314(a)(4) and (b)(1) (wrapping and packaging exemption for manufacturers)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9609L1437G13

Original ruling text

September 13, 1996

Dear ***:

Thank you for your letter concerning the wrapping and packaging exemption
for manufacturers.

A manufacturer may purchase tax free internal and external wrapping,
packing, and packaging supplies for use as a part of the completion of
the manufacturing process by giving a properly completed exemption
certificate to the vendor. See enclosed Rule 3.314(a)(4) and (b)(1).
Therefore, a manufacturer may give an exemption certificate for the
purchase of external packaging supplies including corrugated void-filler
and air bags used in packaging manufactured products during shipment.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Policy, Comptroller
of Public Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9609686L