TAXATION RULING NO. ST 2424

ST 2424

SALES TAX - INDIRECT MARKETING ARRANGEMENTS SALE VALUE

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FOI status:

May be ReleasedFOI number: I 1183784

PREAMBLE

The purpose of this Ruling is to outline the new sale value that will apply to certain sales of goods by retail on an agency basis.

2. Taxation Ruling No. ST 2140 deals with the sale value to be applied to goods sold under indirect marketing arrangements. The Ruling states that the sale value in respect of door-to-door sales, party plan, home demonstration sales or other means of marketing that does not involve sales being made by or through retail stores, is cost into store (or, with imported goods, landed cost) plus 20%. The sale value was stated to be an interim one only and the Ruling pointed out that it would be reviewed.

RULING

3. The review has now been completed and it has been decided that an acceptable sale value for goods sold by indirect marketers in the circumstances outlined in paragraph 2 will be cost into store to the indirect marketer increased by 35%. This will represent an acceptable sale value irrespective of the kind of goods sold.

4. The cost price includes all costs necessary to bring the goods into a marketable state. Where an indirect marketer purchases goods on a delivered into store basis, i.e. the indirect marketer incurs no handling or other costs for the goods, the delivered price will be the cost price. If an indirect marketer is required to pay freight, insurance and other handling costs to have the goods delivered to store or depot, those costs will be required to be added to the purchase price of the goods to calculate the cost into store price. Where a royalty is payable in respect of the goods the cost into store price is to include the amount of that royalty.

5. In some cases, particularly with cosmetics, and perhaps jewellery, indirect marketers may purchase, separately, containers which are supplied to the manufacturer to be filled or in which goods are to be placed. The cost of containers or other packaging materials supplied to the manufacturers form part of the cost of the goods and are to be added to the content cost to arrive at the cost into store figure before the notional 35% is added. The cost does not include any outer containers used by indirect marketers to deliver the goods to agent sellers.

6. For imported goods the sale value will be landed cost plus 35%. Costs such as duty, freight, insurance and handling charges will be required to be added to the imported price of the goods to arrive at landed cost. If the goods are packaged, the sale value is landed cost plus packaging plus 35%. Where applicable, any amount paid as royalties in respect of the goods is to be included in the landed price.

7. Although the sale value is based on a cost into store or landed cost plus percentage basis, this will not preclude an indirect marketer from operating on a retail price less a percentage basis if that method is preferred. Any sale value calculated in this way would need to be equated to the sale value of cost into store, or landed cost, of the goods plus 35%.

8. The above sale value applies across the board to indirect marketers who sell goods by retail on an agency basis as outlined in paragraph 2. However, it is possible that in some instances, because of lower industry margins, a sale value of cost into store, or landed cost, plus 35% may be too high. If an indirect marketer considers that a lower mark-up is appropriate, this should be taken up with the local branch of the Taxation Office.

9. After discussions with industry representatives it was agreed that the new arrangements would operate from 1 May 1988. However, after further representations from the industry, it was agreed that the revised sale value will apply from 1 June 1988.

10. Taxation Ruling No. ST 2140 is modified accordingly.

COMMISSIONER OF TAXATION
16 JUNE 1988

References

ATO references:
NO 86/3548.0

Date of effect:
1 June 1988

Date original memo issued:
4 May 1988

Related Rulings/Determinations:

ST 2140

Subject References:
INDIRECT MARKETING
ARRANGEMENTS - SALE VALUE

Legislative References:
SALES TAX ASSESSMENT ACT (No 2) SECTION 4
SALES TAX ASSESSMENT ACT (No 3) SECTION 4
SALES TAX ASSESSMENT ACT (No 6) SECTION 4
SALES TAX ASSESSMENT ACT (No 7) SECTION 4