Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This section
explains the B&O, retail sales, and use taxes which apply to persons who
sell packing materials and to those who use packing materials.
(2)
Definitions. The term
"packing materials" means and includes all boxes, crates, bottles, cans, bags,
drums, cartons, wrapping papers, cellophane, twines, gummed tapes, wire, bands,
excelsior, waste paper, and all other materials in which tangible personal
property may be contained or protected within a container, for transportation
or delivery to a purchaser.
(3)
Business and occupation tax.
(a)
Sales of packing materials to persons who sell tangible personal property
contained in or protected by packing materials are sales for resale and subject
to tax under the wholesaling classification. Sellers must obtain resale
certificates for sales made before January 1, 2010, or reseller permits for
sales made on or after January 1, 2010, from purchasers to document the
wholesale nature of any sale as provided in WAC
458-20-102A (Resale certificates)
and WAC 458-20-102 (Reseller permits).
Even though resale certificates are no longer used after December 31, 2009,
they must be kept on file by the seller for five years from the date of last
use or December 31, 2014.
(b) Sales
of containers to persons who sell tangible personal property contained within
the containers, but who retain title to such containers which are to be
returned, are sales for consumption and subject to tax under the retailing
classification. This class includes wooden or metal bottle cases, barrels, gas
tanks, carboys, drums, bags and other items, when title to the container
remains with the seller of the tangible personal property contained within the
container, and even though a deposit is not made for the containers, and when
such articles are customarily returned to the seller. If a charge is made
against a customer for the container, with the understanding that such charge
will be canceled or rebated when the container is returned, the amount charged
is deemed to be made as security for the return of the container and is not
part of the selling price for tax purposes. However, refer to the comments
below for sales of containers for beverages and foods.
(c) Title to containers, whether designated
as returnable or nonreturnable, for beverages and food sold at retail,
including beer, milk, soft drinks, mixers and the like, will be deemed to pass
to the customer along with the contents. In such cases, amounts charged for the
containers are part of the selling price of the food or beverage and subject to
retailing tax when sold to consumers. Sales to persons who will resell the food
or beverages are wholesale sales.
(d) Persons who perform custom or commercial
packing for others are generally taxable under the service B&O tax
classification on the income from the packing activity.
(i) Under
RCW
82.04.190, persons taxable under the service
B&O tax classification are consumers of any materials used in performing
the service. Sales of packing materials to persons engaged in the business of
custom or commercial packing are sales for consumption and are subject to the
retail sales tax. However, there is a specific statutory exemption from the
B&O tax for persons who perform packing of fresh perishable horticultural
products for the grower. These persons are also exempt from retail sales tax on
the purchase of any materials and supplies used in performing the packing
service.
(ii) Persons who perform
custom or commercial packing for others and who also manufacture the boxes,
containers, or other packaging materials used by them in the packing are
subject to the manufacturing tax and use tax on the value of the packing
materials which they manufacture. Refer to WAC
458-20-136 Manufacturing,
processing for hire, fabricating.
(e) Persons who operate cold storage
warehouses or who perform processing for hire for others, which includes
packaging the processed items, are not the consumers of the containers or other
packaging materials. Sales of boxes, cartons, and packaging materials to these
persons are taxable under the wholesaling tax classification. Refer to WAC
458-20-136 and
458-20-133 Frozen food
lockers.
(f) Persons who
manufacture packing materials for delivery outside Washington or for their own
commercial or industrial use are manufacturers and should refer to WAC
458-20-136,
458-20-134 Commercial or
industrial use, and WAC
458-20-112 Value of
products.
(4)
Retail sales tax.
(a) All sales
taxable under the retailing classification of the business and occupation tax
as indicated above are also subject to retail sales tax except those
specifically distinguished hereafter in this subsection.
(b) Retail sales tax does not apply to sales
of returnable food and beverage containers, and vendors may take a deduction
from gross retail sales for the amount of such sales in reporting sales tax
due, providing (i) the seller separately states the charge for the container
and (ii) the separately stated charge is the amount the vendor will pay for a
repurchase of the container. Return of the containers is a repurchase by the
vendor, and sales tax is not due on amounts paid to the customer on such
repurchases, since the vendor will resell the containers in the regular course
of business. (RCW 82.08.0282.)
(c) No deduction is allowed in computing tax
under the retail sales tax classification where the retail sales tax is
collected from the customer upon the charge for the container.
(d) Sales of packing materials to cooperative
marketing associations, agents, or independent contractors for the purpose of
packing fresh perishable horticultural products for the growers thereof, are
not subject to retail sales tax. See also WAC
458-20-214 Cooperative marketing
associations and independent dealers acting as agents of others with respect to
the sale of fruit and produce.
(5)
Use tax.
(a) The use tax applies to uses of packing
materials and containers to which retail sales tax would apply but, for any
reason, was not paid at the time such materials and containers were
acquired.
(b) The use tax applies
to the use of packing materials, such as boxes, cartons, and strapping
materials, by a manufacturer in Washington where the packing materials are used
to protect materials while being transported to another site of the
manufacturer for further processing.
(c) The use tax applies to the use of pallets
by a manufacturer or seller where the pallets will not be sold with the
product, but are for use in the manufacturing plant or warehouse.
(6)
Examples. The
following examples identify a number of facts and then state a conclusion.
These examples should be used only as a general guide. The tax status of each
situation must be determined after a review of all of the facts and
circumstances.
(a) ABC Packing Co. does custom
packing of small parts for a Washington manufacturer. The parts are sent by
truck to ABC who then places the parts into plastic bags and seals the bags
through a heat fusion process. ABC is the consumer of the bags and must pay
either retail sales tax or use tax on the use of the bags. This is true even
though the bags will remain with the parts until delivered to the ultimate user
of the parts.
(b) XY manufactures
paper products in Washington. The paper is placed on large rolls. These large
rolls are shipped to another of its own plants where the paper goes through a
slitter for conversion into reams of paper. These large rolls involve the use
of "cores" made of heavy fiber board on which the paper is rolled. "Plugs" are
placed in the ends to give additional support. The rolls are also wrapped and
banded with steel banding. The cores, plugs, wrapping materials, and banding
are all eventually removed during the additional processing. XY is the consumer
of the plugs, cores, and other packing materials and must pay retail sales or
use tax on these items.
(c) XY uses
three types of pallets in its manufacturing operation. One type of pallet is
used strictly for storing paper which is in the manufacturing process. A second
type of pallet is returnable and the customer is charged a deposit which is
refunded at the time the pallet is returned. The third type of pallet is
nonreturnable and is sold with the product. XY is required to pay retail sales
or use tax on the first two types of pallets. The third type of pallets may be
purchased by XY without the payment of retail sales or use tax since these
pallets are sold with the paper products.
(d) Cold Storage Co. does custom fish
processing for various customers. The processing involves cutting whole fish
into fillets or steaks, vacuum packaging the pieces, and freezing the packages.
The packing activity is considered to be part of a processing for hire
activity. As a processor for hire, Cold Storage Co. is not the consumer of the
packing materials.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
chapters
82.04,
82.08,
82.12 and
82.32 RCW. 10-06-069, §
458-20-115, filed 2/25/10, effective 3/28/10. Statutory Authority:
RCW
82.32.300. 93-19-017, § 458-20-115,
filed 9/2/93, effective 10/3/93; 88-20-014 (Order 88-6), § 458-20-115,
filed 9/27/88; Order 74-2, § 458-20-115, filed 6/24/74; Order ET 70-3,
§ 458-20-115 (Rule 115), filed 5/29/70, effective
7/1/70.