A yarn manufacturer’s purchase of packaging material used to deliver yarn to its customers was found exempt from North Carolina sales and use tax. To ship its cones of yarn to customers, the taxpayer uses a “yarn pak” which is returned to the taxpayer for recycling and reuse. After the cones of yarn are packed into the yarn pak, the taxpayer typically wraps it in “shrink wrap” overlapping the edges of the bottom and top pallets as well as the dividers. Although, the shrink wrap is not part of the yarn pak and is not necessary to hold the yarn pak together, it does provide a protective barrier against dust and moisture during shipping.
The North Carolina statute provides an exemption for a container that is used as packaging by the owner of the container or another person to enclose tangible personal property for delivery to a purchaser of the property and is required to be returned to its owner for reuse. However, the Department argued that the plain language of the statute only exempts containers that enclose tangible personal property and the yarn paks did not completely enclose the yarn cones. In order to accept the Departments position that a container must “completely” or “fully” enclose property, the Court would have to add language to the statute, which it has no power to do. Therefore, it was determined that the taxpayer’s purchase of the yarn paks did qualify for the exemption from sales and use tax. (Parkdale America, LLC v. Hinton, North Carolina Court of Appeals, No. COA09-10, October 6, 2009)