Opinion Letter

Letter Number:O-2011-011
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Pet food pallets and shrink wrap.
Keywords:
Approval Date:11/17/2011



Body:
Office of Policy & Research


November 17, 2011

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XXXX Dear XXXX:

Thank you for your recent letter. One of your clients manufacturers pet food in Kansas. The pet food is bagged and placed on wood pallets. The bags and pallets are then wrapped in shrink wrap, which is a plastic film that shrinks tightly over the bags and pallet when heat is applied. This allows the pet food to be easily handled at the manufacturing plant and during subsequent shipment and storage.

The manufacturer does not have an ownership interest in the pallets or shrink wrap that is separate or apart from its ownership interest in the pet food. The wholesale or retail buyer that unwraps the shrink-wrapped pet food bags for sale or distribution has no obligation whatsoever to return the pallets or shrink wrap to the manufacturer or to anyone else.

You ask if the pallets or shrink wrap are subject to Kansas sales tax when purchased by the manufacturer. The answer is no. This is because of the definition of "ingredient or component part" in K.S.A. 79-3602(p) and the exemption for such parts in K.S.A. 79-3606(m).

The definitions provides in parts relevant here: In the example you provide, the wholesale or retail buyer that unwraps the shrink-wrapped pet food bags for sale or distribution has no obligation whatsoever to return the pallets or shrink wrap to the manufacturer or to anyone else for reuse. Because of this, the pallets are treated as ingredient or component of the manufacturer products. This means the manufacturer can claim a resale exemption when it buys the shrink wrap and pallets or when it buys wood that it fabricates into the pallets.


Date Composed: 11/17/2011 Date Modified: 11/17/2011