We are a manufacturing company. Are packaging materials for pallets or gift basket paper taxable?

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State sales tax exemptions vary by state. Typically materials used in manufacturing/producing product for resale are exempt, though materials consumed by a manufacturer-as-end-user (e.g. office supplies) are not. We assume you are concerned about Ohio sales tax; other states’ laws may vary.

The State of Ohio web site tax information FAQs on Sales & Use Tax, “What sales are exempt/excepted from sales tax?”, includes these:

• Material incorporated as part of tangible personal property produced for sale by manufacturing, assembling, processing, or refining.
• Tangible personal property used or consumed in a manufacturing operation.
• Things used or consumed primarily in storing, transporting, mailing or otherwise handling purchased sales inventory in a warehouse, distribution center or similar facility when the inventory is primarily distributed outside this state to retail stores of the person who owns or controls the warehouse, distribution center, or similar facility.

We called the state and spoke with Tony, who referred to Ohio tax code section 5739.02B15, which provides more detail than the above; you can find it here.

Tony says the paper going into the gift basket is effectively packing material and is exempt, per 5739.02B15. As for “material put on pallets for packaging,” we do not fully understand what you mean here, but we gave that description, and said we believed that the pallets might then be loaded on trucks for distribution, which would mean said material is part of “packaging.” Tony says that also would be exempt, citing the same section of the code.  He cited the following, which we have copied and pasted:

"Packages" includes bags, baskets, cartons, crates, boxes, cans, bottles, bindings, wrappings, and other similar devices and containers, but does not include motor vehicles or bulk tanks, trailers, or similar devices attached to motor vehicles. "Packaging" means placing in a package.

The Ohio tax dept. phone number is (888) 405-4039.

For other states, see:
State Tax Agencies
Sales & Use Tax: What’s Taxable by State

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