Connecticut State Department of Revenue Services

Ruling 93-9

Sales and Use Taxes
Resale of Tangible Personal Property;
Containers

FACTS:

A Connecticut company (hereinafter referred to as "the Company") produces injection-molded plastic boxes which are designed to package laser discs for use in the video sale and rental business. The Company sells the boxes (1) to distributors who in turn resell them to retail outlets and (2) directly to retailers for the retail sale or rental of the laser discs packaged in the boxes. The video stores charge sales tax on their retail sales or rentals of the boxed laser discs to the public.

ISSUES:

Whether the sales of plastic boxes by the Company qualify for the exclusion from sales and use taxes as sales for resale under Conn. Gen. Stat. § § 12-410 and 12-411 when sold to distributors who resell the boxes to retailers without contents.

Whether the sales of plastic boxes by the Company are exempt from sales and use taxes under Conn. Gen. Stat. § 12-412(14)(A) when sold to distributors or retailers who place laser discs in the boxes and sell them in connection with the sale of the contents.

Whether the sales of plastic boxes by the Company qualify for the exclusion from sales and use taxes as sales for resale under Conn. Gen. Stat. § § 12-410 and 12-411 or the exemption afforded by Conn. Gen. Stat. § 12-412(14) when sold to retailers to protect laser discs that the retailers rent to the public.

DISCUSSION:

Under the Sales and Use Taxes Act it is presumed that all gross receipts are subject to sales and use taxes until the contrary is established. Conn. Gen. Stat. § 12-410(1); cf. Conn. Gen. Stat. § 12-411(9). The burden of proving that a sale is not a sale at retail is upon the seller unless a resale certificate is taken from the purchaser. A resale certificate is considered to have been taken in good faith only from a person who is engaged in selling tangible personal property and who holds a retailer's permit as provided for in Conn. Gen. Stat. § 12-409 and who, at the time of purchase, intends to sell the property being purchased in the regular course of business. Conn. Gen. Stat. § 12-410(2) and Conn. Agencies Regs. § 12-426-1(a); cf. Conn. Gen. Stat. § 12-411(10). When the Company sells plastic boxes to distributors who resell the boxes without contents to retail outlets, such sales qualify for the sale for resale exclusion, and the Company is relieved of its burden of proving that such sales are not sales at retail if proper resale certificates are taken from the purchasers.

Conn. Gen. Stat. § 12-412(14) provides an exemption from sales and use taxes for

(A) Nonreturnable containers ... when sold without the contents to persons who place the contents in the container and sell the contents together with the container ..."

When the Company sells plastic boxes to distributors or retailers who place laser discs in the boxes and transfer title to the boxes together with the discs, such sales qualify for the exemption afforded by Conn. Gen. Stat. § 12-412(14)(A).

When the Company sells plastic boxes to retailers who purchase the boxes to protect video discs which are rented to the public, such sales are not sales for resale. In the case of Harsco Corporation v. Groppo, Conn. Super. Ct. No. 302579 (November 25, 1987), the Connecticut Superior Court ruled on a similar issue involving the application of sales and use taxes to the lease of reusable gas tanks to retailers of gas products. The Superior Court found that Harsco's customer, a gas retailer, was in the business of selling gas, but not the tanks in which the gas was delivered. The court stated that the gas retailer's "dominant purpose in leasing the tanks was for recurring use in marketing its gases." Harsco, p. 5. The court in Harsco held that the reusable gas tanks could not be leased on a resale basis by a retailer in the business of selling gas products, notwithstanding the fact that a demurrage fee, or late charge, was made by the gas retailer to its customers for the use of the reusable gas tanks. Harsco was held liable for sales tax, and the gas retailer for use tax, on the lease of the reusable gas tanks.

The reasoning of the Harsco decision is directly applicable to the instant situation. Video rental stores are in the business of renting videos to the general public, not of renting the plastic containers to the general public. The video rental stores' dominant purpose in purchasing the Company's plastic boxes is to use the plastic boxes on a recurring basis in the renting of video discs to the public. Therefore, the Company is liable for sales tax on the sale of plastic boxes sold to retailers for use in connection with video rentals.

Nor are the exemptions in Conn. Gen. Stat. § 12-412(14) applicable to the sale of plastic boxes sold for use in connection with video rentals. Conn. Gen. Stat. § 12-412(14)(A) applies only to the sale of "nonreturnable containers." The plastic boxes sold in connection with video rentals are not nonreturnable, but instead are intended to be returned, with their contents, to the retailer at the end of the rental period. Likewise, the exemption in § 12-412(14)(C) does not apply. That subparagraph refers to "returnable containers when sold with the contents in connection with a retail sale of the contents ..." The plastic boxes are not sold by the Company to the retailers with their contents.

RULING:

Sales of plastic boxes by the Company qualify for the exclusion from sales and use taxes as sales for resale under Conn. Gen. Stat. §§ 12-410 and 12-411 when sold to distributors who resell the boxes without contents to retailers, and the Company is relieved of its burden of proving that such sales are not sales at retail if proper resale certificates are taken from the purchasers.

Sales of plastic boxes by the Company are exempt from sales and use taxes under Conn. Gen. Stat. § 12-412(14)(A) when sold to distributors or retailers who place laser discs in the boxes and transfer title to them together with their contents.

Sales of plastic boxes by the Company to retailers for use in connection with the rental of video discs to the public do not qualify for the exclusion from sales and use taxes as sales for resale under Conn. Gen. Stat. § § 12-410 and 12-411, since the retailers' purpose is to use them on a recurring basis in the rental of laser discs, and not to resell them to the public.

Sales of plastic boxes by the Company to retailers for use in connection with the rental of laser discs to the public do not qualify for the exemption from sales and use taxes under Conn. Gen. Stat. § 12-412(14)(A) since the plastic boxes are not "nonreturnable." Such sales do not qualify for the exemption under § 12-412(14)(C) since they are not sold by the Company with their contents.

LEGAL DIVISION

May 20, 1993