The Indiana Department of Revenue (DOR) has issued a revenue ruling regarding the taxability of non-returnable wrapping materials. The taxpayer operates numerous distribution centers for its customers in Indiana. The taxpayer receives shipments of customer-owned products then uses non-returnable packaging materials such as bags, boxes, bubble wrap, cardboard pads, labels, stretch wrap, tape, pallets, and crates to prepare its customer-owned products for shipment.
At question is whether the taxpayer’s purchases of non-returnable packaging materials and packaging equipment for use in the packaging services it provides to its customers are exempt from sales tax.
The DOR determined that the taxpayer does not transform its customers’ products or create a new marketable product. Rather, they provide logistics and packaging services. As a result, the taxpayer’s purchases of non-returnable materials are not exempt from Indiana sales tax since they don’t meet the statutory requirement for the exemption.
Per Indiana tax law, machinery, tools, and equipment purchased for direct use in the production of goods are subject to sales and use tax unless the property has an immediate effect on the goods produced and is essential to an integrated process used to produce marketable goods. Since the taxpayer does not transform its customers’ products into new marketable products, the packaging equipment is not exempt from Indiana sales tax as manufacturing equipment used directly in production.
The non-returnable wrapping materials as well as the machinery, and equipment used in providing the packaging services are subject to Indiana sales and use tax. (Revenue Ruling No. 2025-04-RST, Indiana Department of Revenue, September 25, 2025)