Ohio Sales/Use Tax: Maximizing the Packaging Exemption for Food Processors and Retailers (and perhaps Wholesalers)
An often over-looked and underutilized exemption from Ohio sales and use tax is the so-called “packaging exemption”. To claim this exemption, the business must engaged in one of several enterprises, including manufacturing or making retail sales. This exemption is available for packaging materials and equipment, which are defined broadly. Further, since packaging material includes any property that restrains movement of the product in more than one plane of direction, this exemption will also cover bulk packaging, such as boxes, cartons and bound pallets used to transport the product to the retailer. Thus, the packaging exemption covers much more than the standard bag or carton that the consumer ultimately receives the product in.
The packaging exemption is particularly important for food processors or retailers who change the state or form of the product thereby qualifying their status as a manufacturer. A typical food processing operation may involve the purchase of bulk products broken down into the form received by the consumer – such as cutting produce, slicing lunch meat or cheese, or grounding up beef. As a manufacturer, the food processor is not required to pay Ohio sales or use tax on: 1) packaging the consumer ultimately receives the product in; 2) bulk packaging, as explained above; 3) equipment that places the product in the package or is an integral part of this process; 4) labels; and 5) equipment which makes labels, prepare packages for labeling, or places/prints labels. For example, a conveyor that automatically places a product into a package (including bulk packages), without any manual assistance, is exempt from Ohio sales and use tax. Likewise, equipment used to label packages or prepare packages for labeling, which may be integrated into a conveyor system, is also exempt.
Lastly, all may not be lost for wholesale businesses which do not qualify for the packaging exemption. As an alternative, a wholesaler may be able to claim the resale exception for packaging materials by charging its customer a separate amount for such materials independent of the charge for the underlying food product being sold.
Please do not hesitate to contact us if you need advice regarding your particular operation.