United States

Utah: Taxpayer Did Not Qualify for Exemption for Nonreturnable Shipping Containers

Feb 27, 2017
From KPMG TaxWatch

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The Utah Tax Commission recently ruled that a pet food manufacturer was not entitled to a refund of sales tax paid on rentals of pallets used to ship pet food to customers. Under Utah law, sales and use tax applies to rentals of tangible personal property. There is a specific exemption from tax for “nonreturnable containers” sold or rented to a manufacturer for use in packaging tangible personal property sold by the manufacturer. A Utah rule provides that sales of containers are taxable when they are “ordinarily returned to and reused by the manufacturer” for transporting product. The taxpayer/manufacturer at issue, rented its pallets from a pallet pooling company. The taxpayer’s customers returned the pallets to the company (or the company collected the pallets), but they were not returned to the taxpayer directly. The pallets would then go back into the pallet pool and be used as necessary by the taxpayer and other customers of the pallet pooling company. Because the rule stated that containers ordinarily returned to and reused by a manufacturer are taxable, the taxpayer argued that the containers at issue (which were returned to the pallet pooling company, rather than the taxpayer/manufacturer) were nonreturnable containers and should be exempt.

The Tax Commission rejected the taxpayer’s position that because the pallets at issue were returned to the pallet pooling company, rather than the taxpayer, they were nonreturnable containers exempt from sales and use tax. In the Commission’s view, nothing in the law indicated that a container should be considered “nonreturnable” if it was returned to someone other than the taxpayer. Furthermore, the pallets at issue were returned to the pallet pooling company where they would likely be reused by the taxpayer and other businesses. The Commission noted that it had addressed this issue in a prior ruling, and no argument presented in this case supported deviating from that ruling. Please contact Michael Larkin at 801-237-1335 with questions on this ruling.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.