Opinion ID: 1676311
Heading Depth: 1
Heading Rank: 2

Heading: The Transportation Exemption.

Text: The district court also found that the plastic bags were within the use tax exemption set forth in Iowa Code sections 423.4(4) and 422.45(19). Section 423.4(4) specifically exempts from tax the use of tangible personal property if the gross receipts from the sale of the property are exempted from the retail sales tax by the terms of section 422.45. Iowa Code section 422.45(19) exempts from retail sales tax [t]he gross receipts from the sale of property which is a container, label, carton, pallet, packing case, wrapping paper, twine, bag, bottle, shipping case or other similar article or receptacle sold to retailers or manufacturers for the purpose of packaging or facilitating the transportation of tangible personal property sold at retail. Atlantic Bottling argues that this exemption applies to the plastic bags which it distributed to its retailers and redemption centers. The company charged a deposit in order to encourage return of container-filled bags by its customers. Although section 422.45(19) defines as exempt only those items which are used for the transportation of tangible personal property sold at retail, Atlantic Bottling argues that the exemption extends to the entire process surrounding the delivery of tangible property for retail sale. In essence, Atlantic Bottling argues that any item that is an incident to packaging, facilitating or transporting the beverages sold at retail should be exempt from tax under sections 423.4(4) and 422.45(19). In reversing the final agency decision on this issue the district court adopted the company's theory: If [Atlantic Bottling's] construction of the statute is followed and the court so finds that it should be, then it can be seen that the requirements of chapter 455C require that as an incident thereof [Atlantic Bottling] is required to retrieve the containers which is, of course, a cost of the product which is ultimately sold at retail. Section 422.45(19) makes no exception as suggested by the department, and it is clear that the bag itself is an incident to the sale itself. Thus the bags are also exempt under the provisions of section 422.45(19) of The Code. We disagree with Atlantic Bottling's overbroad reading of the statutory transportation exemption. The statute's plain language requires more than a finding that an item is incident to the sale, or a cost of the product. In order to be exempt, an item must be purchased by a retailer for the purpose of packaging or facilitating the transportation of tangible personal property sold at retail. Iowa Code § 422.45(19). We strictly construe exemption provisions in tax statutes, with doubts resolved against exemption and in favor of taxation. North Star Steel Co., 380 N.W.2d at 680; Iowa Auto Dealers Association, 301 N.W.2d at 762. The department correctly construed this exemption statute in finding it inapplicable to these plastic bags used solely to facilitate the return of empty containers. The bags were not used to package or transport the product sold at retail, carbonated beverages. The district court erred in deciding that the plastic bags were exempt under Iowa Code sections 423.4(4) and 422.45(19).