PURPOSE: Section 144.018.1, RSMo excludes from tax purchases intended to be resold as tangible personal property. Section 144.030.2(2), RSMo exempts materials that become a component part of new personal property. Section 144.011.1(10), RSMo excludes from tax certain items of a non-reusable nature purchased by eating or food service establishments. This rule explains when purchases of packaging and shipping materials are not subject to tax.

1. (1) In general, purchases of packaging and shipping materials included with, or used to deliver, a product for ultimate sale at retail are not subject to tax. Purchases of non-reusable items by eating or food service establishments are not subject to tax.

2. (2) Definition of Terms.

   1. (A) Packaging and shipping materials—containers, pallets, drums, and other items used to ship merchandise to customers. It also includes supplies used in shipping, such as tape, strapping, plastic peanuts, foam, cardboard pads, packaging slips, etc. Finally, packaging encompasses integral parts of the finished product such as display cartons and packaging containing the product, e.g., cereal box, and shipping containers.

3. (3) Basic Application of Tax.

   1. (A) The purchase of packaging and shipping materials are taxable if—

      1. 1. The packaging is used solely “in house” by the seller and

is not subsequently transferred to a purchaser;

1. 2. The packaging material must be returned to the seller

and the customer does not acquire title to, ownership of, or the right to use the packaging material;

1. 3. The packaging is transferred incidental to the rendering

of a non-taxable service, such as with the sale of custom software or color separations; or

1. 4. The packaging is used to ship items that are being

transferred, such as gifts or free samples.

1. (B) Purchases of items of a non-reusable nature by persons operating eating or food service establishments making retail sales are not subject to tax if the item is furnished with or in conjunction with the retail sale. Such items include, but are not limited to, wrapping and packaging items, non-reusable paper, wood, plastic, and aluminum articles including containers, trays, napkins, dishes, silverware, cups, bags, boxes, straws, and toothpicks.

1. (4) Examples.

   1. (A) A retailer packages its goods to be shipped to its customers. The packaging and shipping items include boxes, pallets, metal banding, cardboard pads, etc. The customer is not required to return any of these items. The retailer does not owe tax on its purchase of these items.
   2. (B) A distributor separately purchases boxes to store its merchandise in its warehouse. These boxes are not subsequently used for shipments to its customers. The purchase of these boxes is subject to tax.
   3. (C) A grocery store purchases bags that its customers use to carry out their groceries. The grocery store may purchase these bags exempt from tax.
   4. (D) A taxpayer purchases or leases pallets that will be used to ship merchandise to its customers. The customer is required to return the pallet and never acquires title to, ownership of, or the right to use them. The purchase or lease of the pallets is taxable.
   5. (E) A taxpayer purchases or leases pallets that will be used to ship merchandise to its customers. The customer is required to return the pallet, but does have the right to use the pallet until it is returned. If there is consideration paid for the use of the pallet, the purchase or lease of the pallets is not taxable.
   6. (F) A dry cleaner purchases plastic bags used to protect clothes after cleaning. Because the dry cleaning is not a taxable service, the dry cleaner must pay tax on the purchase of the bags.

AUTHORITY: section 144.270, RSMo 2016.* Original rule filed Aug. 21, 2000, effective March 30, 2001. Amended: Filed Oct. 2, 2018, effective April 30, 2019. *Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1945, 1947, 1955, 1961, 2008. Brambles Industries, Inc. v. Director of Revenue, 981 S.W.2d 568 (Mo. banc 1998), the Court held that leases of packaging material are excluded from sales tax when the packaging material is leased for the purpose of transferring the right to use the packaging material to a subsequent purchaser for valuable consideration. House of Lloyd v. Director of Revenue, 884 S.W.2d 271 (Mo. banc 1994) (House of Lloyd II), House of Lloyd (HOL) sold merchandise, such as Christmas gifts, through a hostess program. At issue was the packaging containing the individual boxes that were used to deliver the goods from HOL to its hostesses. DOR argued that HOL was the user and consumer of this packaging. The Court held that the incidental benefit received by the seller did not violate the resale claim of exemption. Sipco, Inc. v. Director of Revenue, 875 S.W.2d 539 (Mo. banc 1994), the purchase of dry ice that was used to package fresh pork products and to transport the products to customers was exempt from tax as a purchase for resale.