Sales Tax Bulletin - No. 25

STB 25

Florists

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Date of Issue: 1 May 1997

Valid from 1 May 1997

About this bulletin

This bulletin explains how the sales tax law applies to florists. It gives details of the sales tax exemptions available and the sales tax treatment of floral products. It is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. It replaces any previous private or public rulings, if they are inconsistent with the bulletin, and is current as at 1 May 1997.

If, after reading this bulletin, you need more information on how the sales tax law affects your business, contact your local Tax Office on 13 28 66 for the cost of a local call.

How does sales tax affect me?

If you're in business as a manufacturing florist, you're liable for sales tax on any taxable goods you manufacture which you sell or apply to your own use, unless an exemption applies. Under the sales tax law, a manufacturing florist can choose to be registered for sales tax purposes and receive a sales tax registration number.

Although you can choose whether or not to be registered, your choice will affect your entitlement to obtain some goods free of sales tax. If you do register, you will be entitled to obtain free of sales tax, certain goods used in your manufacturing activities by quoting your sales tax registration number to your supplier.

Who can register for sales tax?

You can apply for registration if you're in business and carry out any of the following activities (or intend to do so):

• • manufacture goods;

• • sell goods by wholesale (this generally covers sales to people who resell goods);

• • sell goods (not of your own manufacture) by indirect marketing, e.g., through commission agents;

• • sell raw materials to a manufacturer;

• • sell goods to eligible Australian or foreign travellers in accordance with prescribed export rules; and

• • carry out certain activities on behalf of manufacturers.

How do I register for sales tax?

To register for sales tax purposes, just complete an Application for Registration - Sales Tax form. These forms are available from your local Tax Office. If you don't have a tax file number, you will also need to refer to the Proof of Identity Documents Information Sheet (also available from your local Tax Office) and provide the appropriate form of identification. You'll need to send us this identification with the completed application form. Once we register you, we'll send you a letter with your sales tax registration number on it.

How do I quote my sales tax registration number?

Once registered, you can quote your sales tax registration number in the following form to buy certain business inputs free of sales tax:

Do I have to quote every time I buy goods free of sales tax?

No. You can now give your suppliers a single quotation of your sales tax registration number to cover all your tax free purchases in a period, where that period does not exceed one year (called a periodic quotation), in the following form:

What happens if I don't register?

If you choose not to register, you won't be able to buy your business inputs or, in some cases, your trading stock, where you intend to sell that stock by wholesale, free of sales tax. You may be able to claim a credit for sales tax paid on such goods, but you will have to wait until you have produced goods from those raw materials, or have used those business inputs and have sold the goods or applied them to your own use before you can claim a credit.

For example, an unregistered manufacturing florist cannot buy goods such as bowls, oasis foam or wire if they are to be used as raw materials in producing floral products, free of sales tax. When those raw materials have been used in the manufacture of floral products and the first of those products is sold, a refund of the sales tax paid on the raw materials becomes available by applying to the Tax Office.

Is there any small business exemption?

The sales tax small business exemption is available to those people who:

• • were liable for $10,000 or less sales tax during the last 12 months; and

• • expect to be liable for $10,000 or less sales tax during the next 12 months.

If you choose to use the small business exemption, you must pay sales tax to your suppliers when buying your business inputs or trading stock. You then do not have to charge sales tax to your customers when you sell goods, nor do you have to pay sales tax when you apply goods to your own use.

If, at any stage, you exceed the $10,000 limit, you will have to calculate and collect sales tax on the current transaction. For more information, contact your local Tax Office on 13 28 66 for a free copy of Bulletin No. 18 Sales Tax - Small Business Exemption.

What goods can I buy free of sales tax?

If you're registered, you can buy certain business inputs free of sales tax by quoting your sales tax registration number. Business inputs includes goods such as:

• • raw materials;

• • machinery, apparatus, tools, etc. used mainly in a manufacturing activity, e.g., secateurs used mainly in the production of wreaths; and/or

• • machinery, apparatus, tools etc. used mainly in an activity which directly supports the manufacturing activity, e.g., an air conditioner used mainly to control the temperature in an area where you carry out your manufacturing activity.

You can also quote your sales tax registration number for containers or packaging which you use to pack or secure goods for marketing or delivery provided you have manufactured those goods, e.g., a floral arrangement or a floral tribute, and possession or control of the container or packaging passes to the purchaser or customer of those goods.

What goods can't I buy free of sales tax?

Not all goods that you buy for your business qualify for sales tax exemption. You can normally only buy business inputs, certain containers (see above) and in some cases, trading stock free of sales tax.

When you buy goods that don't qualify for sales tax exemption, you must not quote your sales tax registration number, unless you intend to sell those goods by wholesale. Your supplier must then charge you sales tax. You may wish to tell your supplier that you're not claiming exemption on that purchase.

Some examples of goods you can't buy free of sales tax are:

• • general-purpose road vehicles except in certain limited circumstances;

• • mobile phones used mainly for general business or private purposes;

• • staff amenities (such as tea and coffee making equipment, toilet paper etc.);

• • goods for use mainly in connection with administrative or selling activities (such as general stationery, fax machines, certain computers etc.); and

• • boxes, cellophane, rose cylinders, wrapping paper, string, etc., for use specifically in packaging or securing any natural or artificial flowers, or floral products not of your own manufacture, which you sell by retail.

What if I've already given my supplier a periodic quotation?

Where you've given your supplier a periodic quotation, but you're buying goods for which you're not entitled to quote, you must tell your supplier that you are not claiming exemption. The notice should be in the following form:

If you buy goods free of sales tax and then use them in such a way that they don't qualify for exemption, you will have to pay sales tax to the Tax Office.

Which activities involve manufacture?

If you are in business as a florist and carry out the following activities, you are a manufacturer for sales tax purposes:

• • the preparation of a floral arrangement in a vase, oasis or o-bowl where the flowers are fixed in some way, e.g., by wire, or in a medium such as oasis foam, sand, plasticine or coloured marbles. The flowers must be fixed as part of the arrangement. The mere placing of a rubber band around a bunch of flowers is not manufacture;

• • the production of floral tributes (including bouquets, posies, floral baskets and sheaves);

• • the production of wreaths; and

• • the production of dried or artificial flower arrangements.

Which activities don't involve manufacture?

The following activities are not manufacture for sales tax purposes:

• • placing flowers in a bowl, vase or bucket without any fixing;

• • placing a single flower in a specimen vase;

• • tying up, or securing with a rubber band, a bunch of flowers for sale; and

• • selling individual flowers in cylinders or boxes.

Which flowers or floral products are exempt from sales tax?

The following flowers or floral products are exempt from sales tax:

• • flowers that are derived directly from the cultivation of land in Australia are exempt from sales tax, provided they have not been subject to any further processing or treatment that alters their form, nature or condition. They are exempt as primary products;

• • wreaths, and covers and mounts for wreaths. Wreaths are exempt whether made of natural or artificial flowers; and

• • floral arrangements and tributes (including bouquets, posies, floral baskets and sheaves) containing natural flowers. If natural flowers make up more than 50% of the value, or 50% in volume of the tribute, then the tribute may be characterised as a tribute containing natural flowers.

See Appendix on page 10 for a list that shows the rate of sales tax for various flowers and floral products.

What is a floral tribute?

A floral tribute is an arrangement of flowers in a bouquet, posy, sheath, vase, oasis bowl, basket or similar medium; the flowers being fixed together in such a way that the resulting product has a commercial identity of its own. The product is used for special occasions such as weddings, funerals, births, anniversaries and birthdays.

What is a natural flower?

Natural flowers, when used in making floral tributes, include fresh flowers, naturally dried flowers, or artificially dried flowers. Once a flower has been subject to further processing such as dyeing or treating with chemical preservatives, it is no longer regarded as a natural flower.

Which flowers or floral products are subject to sales tax?

Sales tax is payable on the following flowers or floral products:

• • floral tributes or arrangements that contain more than 50% by value or volume of artificial, dyed or chemically preserved flowers;

• • imported natural flowers (except those imported from New Zealand, Fiji, Norfolk Island, Papua New Guinea, Christmas Island and Cocos (Keeling) Islands, which are exempt);

• • artificial flowers; and

• • flowers that have been subject to further processing or treatment, being dyed or chemically preserved.

What about goods sold with floral tributes?

Goods, such as cards, soft toys, novelties, sweets, bottles of wine, etc., do not form an integral part of floral tributes (sometimes referred to as gift baskets) and you cannot quote your sales tax registration number for such goods as raw materials. You must pay sales tax when you buy these goods. Making a floral tribute that accompanies these goods is manufacture.

How do I calculate the sales tax payable on my transactions?

When a taxable floral product is manufactured and sold or applied to your own use and no exemption applies, you calculate sales tax by multiplying an amount known as the taxable value by the rate of tax applicable to the goods. The usual taxable values are discussed below.

Taxable value - manufacturing florists who sell by wholesale

A wholesale sale is a sale to a person who is purchasing goods to resell them, such as a retailer. The taxable value of a wholesale sale is the price for which the goods were sold. As a general rule, this will include all amounts you charge the purchaser, up to the point when the purchaser owns the goods.

Example

You sell a taxable floral product to a retailer for $100 before tax. This is a wholesale sale, as the retailer will resell the goods. The taxable value of the goods will be $100, as this is the price for which the goods were sold.

Taxable value - manufacturing florists who sell by retail

A retail sale is a sale to an end user. When you sell by retail, the taxable value is the price for which you could reasonably have been expected to sell the goods by wholesale under an arm's length transaction. This is known as the notional wholesale selling price.

The taxable value is readily determined when you sell the same type of goods by wholesale in significant quantities in comparable circumstances as your retailed goods. The following paragraphs give some methods of arriving at this value.

What if I sell by both wholesale and retail?

To arrive at the taxable value of the goods you have sold by retail, you can use one of the following 2 methods, depending upon the circumstances:

• 1. The actual wholesale price of similar goods sold in significant quantities to arm's length retailers in comparable circumstances.

Example

You sell taxable floral products by retail for $190 (excluding tax). If you also sell similar goods to arm's length retailers for $100 before tax in comparable circumstances, the taxable value of the goods you sell by retail will be $100 (ie the wholesale price), as this is the price for which you could reasonably have been expected to sell the goods by wholesale.

• 2. If you sell by wholesale at a range of selling prices, you can use the weighted average of your wholesale prices to arrive at the taxable value. For more details about this, contact the Tax Office on 13 28 66 for the cost of a local call.

What if I only sell by retail and I don't sell similar goods by wholesale?

The Tax Office would expect that you would normally sell by wholesale at a price reflecting the sum of manufacturing cost, any research and development costs, wholesale selling expenses and a fair wholesale profit.

A simplified formula (known as a Safe Harbour) for finding this figure is available for manufacturing florists who sell goods by retail but do not sell significant quantities of similar goods by wholesale in comparable circumstances. It is calculated easily by taking the manufacturing cost plus one third of the difference between that amount and the retail selling price (excluding tax) of the goods. A Safe Harbour is a statement of how to calculate taxable value that the Tax Office accepts as completely discharging a taxpayer's liability.

Manufacturing cost means the sum of:

• • the cost of materials used to manufacture the particular goods;

• • the cost of labour used directly in the manufacturing operations; and

• • production, manufacturing or factory overheads.

Example

You sell a taxable floral product by retail for $80 (before tax). If the manufacturing cost of the goods is $50, the taxable value is $60, calculated as follows:

50 + ⅓ of (80 - 50) = 50 + 10 = 60.


For simplicity, once a taxable value has been calculated in this way, it can then be expressed as a percentage off the retail selling price. In this particular example, it is retail selling price (before tax) less 25% (ie $80 - 25% = $60).

Some manufacturing florists may only have a retail price that includes sales tax and may therefore have difficulty in using the previous calculation. If you know only the tax inclusive retail selling price and the manufacturing cost of the goods, the taxable value can be calculated as:

(2C + RSP) / (3 + R)


where:

In the above example the tax inclusive retail selling price of goods taxed at 22% would be $93.20 ($80 plus $13.20 being 22% of notional wholesale price of $60). Applying the formula produces the same taxable value of $60 as follows:

(2 * 50 + 93.20) divided by (3 + 0.22)
= 193.20 divided by 3.22
= $60.


Taxable value - applying goods to your own use

If you've manufactured a floral product and applied it to your own use in circumstances where an exemption doesn't apply, the taxable value is the notional wholesale selling price of the goods. Where you sell similar goods by wholesale or retail, you can calculate the taxable value using one of the methods described above.

If you buy in goods free of sales tax by quoting your sales tax registration number and then apply it to your own use in circumstances where an exemption doesn't apply, the taxable value is the purchase price of the goods.

Examples of the kinds of goods you may apply to your own use in taxable circumstances include: ribbon, cellophane, string etc. bought free of sales tax and used to wrap or secure bunches of flowers for retail sale.

What about wholesale and retail sales to florists?

Sales of materials to florists are retail sales where the florists will use the materials to manufacture floral arrangements or tributes. The taxable value on which tax is payable by the supplier is not the actual selling price, but the notional wholesale selling price of the goods.

The exception to this rule is where the goods are for retail stock to be sold by the florist. In this case, sales tax is paid on the selling price to the florist.

If you're buying taxable goods to be sold to resellers and you're not applying the small business exemption, you may register and quote your registration number on your wholesale trading stock.

How do I pay sales tax to the Tax Office?

If you're liable for sales tax, you must calculate the tax payable and send a return in the approved form with full payment to your local Tax Office. You will receive a booklet of return forms each year if you are registered. If you are not registered, return forms are available from your local Tax Office.

Can I pay my sales tax quarterly?

If you had an annual sales tax liability of less than $56,441 during the financial year 1995/96 and you have no sales tax payments outstanding, you can lodge returns and pay sales tax on a quarterly basis. The relevant quarters are the three months ending 31 October, 31 January, 30 April and 31 July.

If your sales tax liability during 1995/96 was more than $56,441 you must lodge returns and pay sales tax each month.

When is the return and payment due?

The return with full payment is due 21 days after the end of the month or quarter in which the transaction(s) took place. Payment may be made at any branch of the Tax Office.

Can I pay through Australia Post?

You can make your payments at any branch or agency of Australia Post. However, you must use the pre-printed returns from your Sales Tax Return Book and Guide and pay the total of the amount due. Payment will only be accepted where the amount paid matches exactly the amount of liability shown on the sales tax return. Otherwise, the amount must be paid to the Tax Office.

Do you need more information?

If you have any questions or need more information about how the sales tax laws apply to you, please contact your local Tax Office:

APPENDIX

• * 'Floral tributes' includes floral arrangements.

• ** 'Natural flowers' include fresh, naturally dried and artificially dried flowers. It does not extend to dyed or chemically preserved flowers.

ATO references:
NO NAT 2336.05.97