The New York Tax Commissioner has determined that a taxpayers’ rental fees and related charges for reusable food containers to farmers were not exempt from New York sales and use tax. In the opinion, the taxpayer contended that the rental should be exempt because the farmers use the containers to ship produce to the farmers’ customers. New York law does exempt containers if they are used by a vendor to package tangible personal property for sale and the container is actually transferred by the vendor to the purchaser. However, in this situation, the farmers are obligated to return the containers back to the taxpayer. Therefore, the containers are not actually transferred to the customers and the rental fees are subject to New York sales and use tax. The pallet and delivery charges are also subject to tax because they are components of the rental receipts and cannot be deducted. If the taxpayer delivers containers to a farmer at a point outside New York and the farmer is a resident of this State and brings the container into this State for use here, then the farmer’s use of the containers in New York would be subject to state and local use tax, including pallet and delivery charges, unless otherwise exempt.
In addition, any deposits on tangible personal property rented or leased will not be considered a taxable receipt unless it is not refunded by the taxpayer. Since the taxpayer leases containers to its customers, its purchases of containers will qualify for the resale exclusion and will not be subject to sales and use tax, provided the containers are purchased exclusively for resale or re-rental. (TSB-A-09(34)S, New York Commissioner of Taxation and Finance, August 19, 2009)