CCH Tax Day Report
The Vermont Supreme Court determined that insulated fiberglass freezer tubs used by a wholesale grocer for shipping perishable items to retailers and diesel fuel used by the grocer to power refrigeration systems in its trucks were not exempt from sales tax as packing, packaging, or shipping materials.
Under a regulation and a Department of Taxes technical bulletin, returnable and reusable packing and shipping materials were taxable because the purpose of the packaging exemption was to avoid taxation of both the manufacturer or distributor and the consumer. The court agreed with this interpretation, noting that if the exemption applied to the freezer tubs, they would not be taxed at any point in the distribution process. Thus, the court limited the exemption to components of the parcels being shipped and found that the shipping tubs and diesel fuel used for refrigeration were excluded from the exemption because they were not components of the parcels being shipped.
The court declined to address the department’s policy, stated in the regulation and technical bulletin, of applying the packing and shipping materials exemption to reusable shipping materials with a life expectancy not exceeding three years. The purpose of this policy was to provide an incentive for taxpayers to use reusable shipping materials. The court found that the department’s three-year rule had no effect on this case because the shipping tubs had a life expectancy exceeding three years and thus they were excluded regardless of the rule.
C&S Grocers, Inc. v. Department of Taxes, Vermont Supreme Court, No. 2015-282, July 15, 2016, ¶200-986