SALT Report 1828 – The Texas Comptroller issued a letter ruling regarding a Taxpayer’s purchases of packaging supplies that included hang tags, cards, in-counter displays, pouches, foam, pendant and ring boxes, labels, and cases. The Taxpayer purchased these items to package jewelry that it imports and later resells to department stores, home shopping networks, and online retailers.
The jewelry is designed by the Taxpayer’s company however; the actual production is completed in a foreign country. Once the jewelry is produced, it is shipped to the Taxpayer, who then packages the jewelry and ships it to its customers. The packaging process includes placing price and barcode labels on the products and placing packages, displays, fixtures, and brochures in shipping cartons.
During an audit the Taxpayer was assessed additional taxes and penalties for its purchases of packaging supplies as the auditor did not feel that the Taxpayer qualified as a manufacturer. The Taxpayer filed a claim for redetermination.
Upon redetermination, the Comptroller rejected the Taxpayer’s argument that it was a manufacturer and instead ruled that the Taxpayer was a wholesaler who simply imported and repackaged the jewelry for resale.
Therefore, since the Taxpayer was a wholesaler the Comptroller determined that is was unable to claim the manufacturing exemption from Texas sales tax for its purchases of packaging supplies. Consequently, the Taxpayers claim for redetermination was denied and the original tax assessment was upheld.
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