Combination Packages and Gift-Wrapping (Publication 106)
Gift-Wrapping
If you are wrapping products that you have sold in a nontaxable transaction, generally sales tax does not apply to your gift-wrapping charges. If you gift-wrap items that you did not sell or items that are taxable, all of your gift-wrapping charges—including charges for labor—are taxable. The quick reference table is intended as a general guide and can help you determine whether tax applies to your gift-wrapping charges.
You may purchase certain gift-wrapping supplies for resale
You may issue a resale certificate to your supplier when you buy products that become a physical part of the packages you wrap. Examples include wrapping paper, tape, gift boxes, tissue, labels, gift tags, and ribbon. However, you may not issue a resale certificate in purchasing items that do not become part of the wrapped parcels, such as scissors, tape dispensers, and paper holders. If you buy such an item from an out-of-state supplier who does not apply California sales or use tax to the transaction, you must pay use tax directly to the California Department of Tax and Fee Administration (CDTFA). Be sure to include the item's purchase price on the line for "Purchases subject to use tax" when you file your sales and use tax return.
Be sure to keep adequate records
It's important to keep complete, detailed records for all of your transactions, especially if you claim that a sale isn't taxable. If you have made a nontaxable charge for gift-wrapping, be sure that your receipt or other transaction record clearly indicates that the wrapping charge was directly related to your nontaxable sale and that the value of the wrapping did not exceed the value of those products.
You must report gift-wrapping charges on your tax return
Be sure to include all of your gift-wrapping charges in the total (gross) sales you report on your sales and use tax return. You should then list any nontaxable gift-wrapping charges on the line provided for “Other” deductions. Subtract those amounts from your total sales before you calculate the tax due. If you don't take this deduction, you'll pay more tax than you owe.
| Item wrapped | Gift-wrapping charge taxable | Gift-wrapping charge not taxable | Notes |
|---|---|---|---|
| Product other than food |
|
The sale is not taxable (example: sale for resale). | If the sale is taxable, entire gift-wrapping charge is also taxable. |
| Food product |
|
The gift-wrapping charge does not exceed the value of the food product. | Food refers to food products that are sold in tax-exempt transactions, such as fruit, candy, cheese, and noncarbonated, nonalcoholic beverages. |
| Combination package that includes both food products and nonfood items |
|
If your sale is considered a nontaxable sale and the gift-wrapping charge does not exceed the package price. If the sale of a combination package is considered nontaxable (see Combination Packages). | See Combination Packages. |
Revision September 2018