Taxpayer, a commercial printing company, does business in
Indiana. Taxpayer rents or leases certain shipping pallets from a vendor
("Vendor").
…
Taxpayer argued that its leases/uses of
the pallets qualified for the exemption of "nonreturnable containers"
under IC § 6-2.5-5-9(d) and 45 IAC 2.2-5-16(c)(1).
Taxpayer claimed that "if a company purchases pallets and uses them to
ship its products to consignees (with no obligation by the customer to return
them), the pallet is a nonreturnable container, and the company is exempt from
sales tax on the purchase of the pallets."
Taxpayer derived its argument based on one sentence in
Brambles decision stating that "the resolution of the issue hinges on to
whom the pallets must be returned." (Emphasis on original in
Taxpayer's protest letter). Taxpayer argued that Brambles found the
manufacturers' use of the pallets did not qualify for the exemption of
"nonreturnable containers" because the manufacturers' customers had
the "written contractual obligation" of returning the pallets to the possessor/owner
of the pallets, Chep. Taxpayer thus argued that if there is no written
contractual obligation to return the pallets, Brambles is not applicable.
Specifically, Taxpayer argued that, unlike the taxpayer in Brambles, it did not
have any written agreement with Vendor, which obligated Taxpayer to return the
pallets to Vendor. Although Vendor advertised its pallets as
"returnable" and attempted to retrieve its pallets either from
Taxpayer or Taxpayer's customers, Taxpayer asserted that Vendor "did so on
its own initiative." To support its protest, Taxpayer submitted additional
documentation, including a copy of affidavit from Vendor and sample copies of
its "Purchase Orders" of the pallets and the invoices to its
customers.
Taxpayer is mistaken. Neither the statute/regulation nor the
Brambles court imposes such requirement of "written contractual
obligation" in order to find the pallets are "returnable."
...
In this instance, Vendor advertises itself as "the
leader in providing plastic returnable pallets to commercial printers."
(Emphasis added). Taxpayer is one of the commercial printers who have leased
the "returnable pallets" from Vendor. Vendor's advertising also emphasizes
its well-coordinated, nationwide pallet return program. Thus, the pallets were
customarily returned to Vendor through its well established nationwide
returnable/reusable program. Taxpayer may assert that it was not obligated to
return the pallets; however, like Chep's pallets in Brambles, the pallets at
issue here were customarily "passed back to an earlier possessor,"
which in this instance was Vendor. Pursuant to the Brambles decision, "it
is enough that the pallets are "pass[ed] back to an earlier
possessor" to conclude that "the pallets are returnable
containers." Therefore, Taxpayer's lease/use of Vendor's returnable
pallets, like the manufacturers' lease/use of the Chep's pallets, did not
qualify for the nonreturnable container exemption.
...
Thus, Taxpayer's lease and use of Vendor's returnable pallets were subject to
sales/use tax pursuant to the above mentioned statute, regulation, and case
law. Since Taxpayer did not pay sales tax at the time of the transactions, use
tax is properly imposed.
