Is Texas sales tax due on a separately stated, refundable $10 deposit charged on a returnable pallet — whether the underlying product is sold to the end user or to a retailer for resale?

Plain-English summary

A retailer of tangible personal property charges customers a $10 deposit on returnable pallets, on top of the product's price, and credits the $10 back when the customer returns the pallet in usable condition. The retailer asked whether it needs to collect Texas sales tax on that pallet deposit in two scenarios: selling to the end user (with tax charged on the underlying product), and selling to another retailer who will resell the product under a valid resale certificate.

The Comptroller's answer was the same in both scenarios: no sales tax is due on the pallet deposit, as long as it is separately stated to the customer and identified as refundable. That holds whether the sale is to an end user or to a reselling retailer.

That said, the pallet itself is not automatically tax-free to the seller. Under Rule 3.314(a)(4), pallets are classified as packaging materials, which are taxable to non-manufacturers at the time of purchase — so the seller (assuming it's not itself a manufacturer) owes tax on buying the pallets, even though the deposit it later charges customers for those same pallets is untaxed.

What this means for you

Retailers and distributors using returnable pallets or containers

Keep your refundable pallet/container deposit separately stated and clearly labeled as refundable on invoices and receipts — that's what keeps it out of the sales tax base, whether you're selling to an end user or a reselling retailer.

Non-manufacturer sellers who buy pallets or similar packaging

You owe sales tax on the pallets themselves when you purchase them (per Rule 3.314(a)(4)'s packaging-materials classification), even though the deposit you later charge customers for those pallets isn't itself taxable. Don't conflate the two — they're separate tax questions.

Accountants and tax professionals

This letter is a clean, narrow confirmation that a properly documented refundable deposit sits outside the sales tax base regardless of whether the underlying sale is retail or wholesale/resale — the key procedural requirement is separate statement plus explicit "refundable" labeling.

Common questions

Q: Is a refundable pallet or container deposit subject to Texas sales tax?
A: No, as long as it's separately stated on the invoice/receipt and identified as refundable.

Q: Does it matter whether the sale is to an end user or to another retailer for resale?
A: No — the deposit is untaxed in both scenarios, as long as it's properly documented as a separately stated, refundable charge.

Q: Do I owe tax on the pallets themselves when I buy them?
A: If you're not a manufacturer, yes — pallets are classified as taxable packaging materials under Rule 3.314(a)(4) at the time of purchase.

Q: Can I rely on this letter for my own deposit/pallet program?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.314(a)(4) (pallets as packaging materials, taxable to non-manufacturers at purchase)

Subject

Deposit Fee — Reusable/Returnable Containers/Pallets

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801356L

Original ruling text

January 12, 1998

Dear Mr. **:

This is in response to your request for a ruling regarding the taxability of
deposit charges on returnable pallets. Your facts and questions are restated
below followed by my response.

A retailer of tangible personal property charges a $10 deposit on a pallet, in
addition to the charges for the product sold. When the buyer returns the
pallet(s) in a usable state they are given credit for the $10 deposit. Is the
seller responsible for collecting Texas sales tax on the pallet deposit when:

1. The products are sold to the ultimate user with delivery in Texas and sales
   tax is charged on the product.

Response: No sales tax is due on the pallet deposit if separately stated to
the customer and identified as being refundable.

Pallets are considered packaging materials, under subsection (a)(4) of Rule
3.314, and are taxable to non-manufacturers at the time of purchase.

2. The products are sold to a retailer who will resell the product. A proper
   resale certificate is obtained.

Response: No tax would be due on the deposit, see response to #1 above.

This opinion is based on the facts presented. Other facts though similar may
provide a different result. I hope this information answers your questions.
If you need additional information, please call me toll free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts. You may also e-mail our tax
help section at: .

Sincerely,

Gilbert Zamora
Tax Policy Division