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Ruling 93-17

Sales and Use Taxes
Storage and Use


A company that manufactures hardware, such as drawer handles and knobs, door stops and coat hooks (the "Company"), purchases empty hardware displays that it stocks with its hardware and ships to hardware retailers throughout the United States for display at those retail locations. The Company provides these stocked displays to the retailers at no charge. The empty displays are purchased from an out-of-state manufacturer by the Company, and are shipped by the manufacturer to, then filled by, the Company in Connecticut.


Whether the Company's purchases of permanent displays, which are stocked with its product and then shipped to its retailers, are subject to the use tax under Conn. Gen. Stat. § 12-411.


Conn. Gen. Stat. § 12-411 provides that the storage, acceptance, consumption or use in Connecticut of tangible personal property that was purchased for storage, acceptance, consumption or use in Connecticut is subject to the use tax (see Stetson v. Sullivan, 152 Conn. 649, 211 A.2d 685 (1965)), until the contrary is established either by a valid resale certificate or by other evidence. The resale exclusion is available only to a purchaser engaged in the business of selling such property who intends to sell it in the regular course of business. However, if a purchaser who purchased property under the resale exclusion makes any use of such property other than retention, demonstration or display while holding it for sale in the regular course of business, Conn. Gen. Stat. § 12-411(12) provides that the use tax must be paid at the time of such use.

"Use" is defined in Conn. Gen. Stat. § 12-407(5) as including the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business.

In White Oak Corporation v. Dept. of Revenue Services, 198 Conn. 413, 503 A.2d 582 (1986), the court strictly construed the statute creating the resale exclusion against the taxpayer, noting that "[the law allows [the taxpayer] to use this exemption only if the services and rentals were clearly for resale rather than being 'used' by the taxpayer." 198 Conn. at 421. In order to determine whether items are purchased for resale or for use, the intention of the parties to the contract must be reviewed. 198 Conn. at 422.

The Company provides the displays at no cost to retailers to assist in marketing its products to the public. The Company is not in the business of selling the displays themselves, but only the product stocked in the displays. Therefore, when displays are provided to retailers, the Company "uses" the displays in Connecticut within the meaning of Conn. Gen. Stat. § 12-407(5).

However, Conn. Gen. Stat. § 12-407(6) limits the scope of the terms "storage" and "use" to exclude:

[the exercise of] any right or power over tangible personal property shipped or brought into this state for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state, or for the purpose of being processed, fabricated or manufactured into, attached to or incorporated into, other tangible personal property to be transported outside the state and thereafter used solely outside the state.

The Company is exercising its right or power over tangible personal property, thus using such property, outside Connecticut when it transfers title to the property to out-of-state retailers for no consideration. Thus, when the Company purchases displays from an out-of-state source, stocks the displays with its product at its facility in Connecticut, and then ships the stocked displays to retailers outside Connecticut, its purchases of such displays are not subject to the use tax.


When the Company purchases displays from an out-of-state manufacturer which it stocks with its products and provides at no charge to retailers located within Connecticut, the Company "uses" such displays within the meaning of Conn. Gen. Stat. § 12-407(5) and must self-assess the use tax on such purchases pursuant to Conn. Gen. Stat. § 12-411. However, if the retailers to which the Company ships the stocked displays are located outside Connecticut, no use tax is due pursuant to the provisions of Conn. Gen. Stat. § 12-407(6).


Issued: September 22, 1993