Yesterday, the Pennsylvania Commonwealth Court issued its decision in Procter & Gamble Paper Products Company, holding that returnable shipping pallets are not subject to the state's sales and use tax. The Department of Revenue argued that pallets were taxable because they are "returnable containers" which are expressly carved out of the wrapping supply exemption. As authority, the Department cited its letter ruling concluding that returnable pallets were subject to tax in Pennsylvania.
The taxpayer, Procter & Gamble, pointed to a multitude of dictionary definitions and industry standards that support its position that, regardless of whether a pallet is "returnable," pallets are simply not "containers." Further, the taxpayer relied on 58 years of regulatory history, during which time the Department only described items as "containers" if they had volume, like barrels, boxes and bottles.
The court agreed with Procter & Gamble that a pallet is not a "container." Instead, it found pallets to be more akin to "flooring," or "only part of the 'container'." Essentially, the court confirmed Procter & Gamble's assertion that the Department could not choose to read the term "container" out of the statute, in which case any "returnable" wrapping supply would be taxable.1
Therefore, any taxpayers who have paid tax based on the Department's letter ruling should file refund claims.