Pallets that accompany products in a retail sale or sale for resale are considered exempt packaging not subject to sales and use tax. As long as a separate charge for the pallet is not billed to the consumer, the packaging is exempt from tax regardless of how the product is attached to the pallet or if the pallet is returned to the seller following delivery of the product to the consumer.
Sales tax is due on the sale of pallets that are used only to facilitate the transportation of tangible personal property within the premises of the owner and do not accompany a product in a retail sale or a sale for resale, or that are used only in a warehouse and not used as packaging that is incidental to any sale.
Reference: Tenn. Code Ann. § 67-6-329(a)(13). Tenn. Comp. R. & Regs. 1320-05-01-.11(1). Important Notice 18-16.