Are Your Packaging Supplies Tax Exempt?

Sales tax is a consumption tax added to the price of goods and services at the point of sale, with the end consumer bearing this cost. Sellers collect these taxes and remit them to state and local governments, funding public services. While sales tax is common across most of the United States, its application varies by state and locality. Businesses often question whether operational purchases, like packaging supplies, are subject to these taxes or qualify for an exemption.

Fundamentals of Sales Tax and Packaging Supplies

Packaging supplies include materials used to contain, protect, and prepare products for sale or delivery. This includes items such as cardboard boxes, shipping tape, product labels, bubble wrap, plastic bags, and specialized containers. These materials are classified as “tangible personal property” for sales tax purposes, meaning they are physical items that can be seen, weighed, measured, felt, or touched.

The “resale exemption” is a principle in sales tax law that applies to packaging materials. This principle dictates that items purchased by a business for direct resale to customers are not subject to sales tax at the time of the business’s purchase. Instead, sales tax is collected when the item is ultimately sold to the end consumer. This avoids “double taxation,” where the same item would be taxed multiple times along the supply chain.

When packaging becomes an integral part of the product being sold, or is resold along with the product, it qualifies for this exemption. For example, if a manufacturer purchases boxes to package their finished goods, and those boxes are transferred to the customer as part of the product sale, the boxes are exempt from sales tax for the manufacturer. Sales tax rules are administered at the state level, and while specifics can differ, the underlying concept of the resale exemption for packaging materials is widely recognized.

Exempt Scenarios for Packaging Materials

Packaging materials are exempt from sales tax when directly transferred to the customer as an integral part of a product sale. This applies to situations such as shipping boxes for e-commerce, retail bags for in-store purchases, or containers for food items sold by a restaurant.

The exemption also applies when packaging is directly resold to another business or consumer. For instance, a wholesale supplier of empty boxes can purchase these items without sales tax if their purpose is to resell them. Sales tax is applied when the packaging is ultimately sold to its final user.

Packaging materials used solely for shipping products that are being sold are considered part of the cost of the goods sold and are exempt. This includes items like tape, bubble wrap, foam, and cardboard pads that protect products during transit.

Conversely, packaging is not exempt if used for internal company purposes, such as storage containers for office supplies, or for services where no tangible product is transferred to the customer. For example, a moving and storage company’s purchase of boxes for their own use in providing moving services would be taxable. Similarly, items consumed by the business itself, like napkins and straws used in a restaurant but not transferred with a food item, do not qualify for exemption.

Process for Claiming Exemption

To claim a sales tax exemption on qualifying packaging supplies, businesses must provide a sales tax exemption certificate to their suppliers. This document, also known as a resale certificate or reseller permit, informs the seller that the purchase is for an exempt purpose. The seller then does not charge sales tax on the transaction.

An exemption certificate requires specific information to be valid. This includes:
The purchaser’s business name and address
Their sales tax permit number or other relevant business tax ID
The seller’s name and address
The date of the certificate
A description of the items being purchased for resale or exempt use
The purchaser’s signature or that of an authorized representative

Businesses can obtain the correct exemption certificate form from their state’s department of revenue or equivalent tax authority website. These forms are available for download and printing. It is important to use the specific form required by the state where the purchase is being made.

Once completed, the exemption certificate should be provided to the supplier at the time of purchase or within a specified timeframe (e.g., 90 days). Suppliers are required to keep these certificates on file to justify not collecting sales tax. Businesses should maintain accurate records of all exemption certificates issued and received for at least three to seven years, or as specified by state law, to ensure compliance during potential audits.