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New York: Taxable and Exempt Packaging


 Exempt or taxable in New York?

There’s a reason sales tax has been known to turn accountants prematurely grey. It’s because it touches just about everything—even packaging. It has to be properly charged, properly collected, properly reported and filed. When sales tax isn’t collected, the exempt transaction has to be properly documented, and records must be accurately maintained. One small mistake can end up costing businesses bundles.

Consider this: New York vendors who transfer tangible personal property to purchasers need to consider how New York sales tax applies--or doesn’t apply--to the packaging used in the transfer. True story.

As the New York State Department of Taxation of Finance explains in Tax Bulletin ST-107, “Cartons, containers, wrapping and packaging materials and supplies that a vendor uses in packaging tangible personal property for sale are exempt from sales tax when these materials are actually transferred by the vendor to the purchaser.” Since this regards taxes, everything needs to be spelled out. Vendor and purchaser are defined, in the way you would expect, as is the term actually transferred. For clarity’s sake: “actually transferred means that the packaging material is physically transferred to the purchaser along with the item, and can be disposed of as the purchaser wishes.”

Exempt

Packaging materials are exempt from sales tax when actually transferred (see above) with the sale of tangible personal property to a purchaser. Packaging materials include, but are not limited to:

  • Bags, barrels and baskets
  • Bottles, cans and kegs
  • Boxes, cartons and crates
  • Cylinders and drums
  • Pails and pallets
  • Spools and stables
  • Wax paper and wrapping paper

Two examples illustrate when the above packaging materials would be exempt.

  1. “A manufacturer sells goods in bulk and ships them in corrugated cardboard cartons to a retailer. The retailer uses the cartons as temporary storage containers then removes the goods and discards the cartons. The cartons are not subject to tax.”
  2. “A watch repair person purchases boxes and cushioning material to use when returning repaired watches to customers. The box and packaging material are not taxable because they are purchased for resale.”

Taxable

Of course there are exceptions to every rule.  When items are not purchased for resale, they’re not exempt.

For example, sales tax applies when:

  • Returnable containers (kegs, drums, barrels, acid carboys, etc.) are purchased at retail by a person who does not transfer ownership of the container;
  • Cartons or other packaging materials are purchased by a vendor for his or her own use or consumption;
  • Racks, trays or similar devices are used to facilitate delivery of a vendor’s product if such devices are not transferred with the product to the purchaser; and
  • Packaging materials are used in connection with providing exempt services.

Several examples are provided in the tax bulletin.

Packaging used in the restaurant industry

Nowhere says “take out” quite like New York City. As a result, how sales tax applies, or doesn’t apply, to containers and other materials “that hold food or drinks transferred to a purchaser of the food or drink” must be explored. The following containers are exempt from sales tax when purchased for resale:

  • Cups and lids
  • Sandwich wrappers and food sleeves
  • Disposable plates and paper bags

In order for the exemption to be valid, the buyer must provide the vendor with a properly completed Form ST-120, Resale Certificate.

It should be noted that many items used by eating establishments are not eligible for an exemption from sales tax (they may not be purchased for resale). These include but are not limited to:

  • Napkins
  • Straws and stirrers
  • Plastic knives, forks, spoons, etc

Confused? Sales tax automation software can help. Learn more.

photo credit: seelensturm via photopin cc


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.