North Carolina Sales / Use Tax: Packaging material exemption requires general enclosure, not full encapsulation

Parkdale America LLC v. Department , N.C. Ct. of App. (10/6/09). A North Carolina Court of Appeals affirmed a summary judgment in favor of an industrial yarn manufacturer that it qualified for the State's packaging materials exemption on its "Yarn Pak" containers that it used as packaging to hold the tangible yarn it sold/shipped to customers, and which was required to be returned by the customers to the manufacturer (who retained ownership) for reuse.

The department unsuccessfully claimed that the manufacturer was not entitled to the exemption because the plain language of the statute only exempts containers that fully enclose tangible personal property, rather than merely fence them in (as was the case here with the top and bottom pallets, dividers, and shrink-wrap contained in the Yarn Pak). However, the Court concluded that the agency's "interpretation of the statute at issue is irrelevant" as legislative intent can be "derived from the plain language of the statute." Because the Yarn Pak surrounded the product on all sides, it sufficiently "enclosed" the product and did not have to completely or fully encapsulate it to qualify for the exemption.