TAXATION RULING NO. ST 2103

ST 2103

SALES TAX : SOFT DRINK DELIVERY CHARGES

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FOI status:

May be releasedFOI number: I 1122285

PREAMBLE

Under paragraph 18(1)(a) of Sales Tax Assessment Act (No. 1) the sale value of goods sold by wholesale is the amount for which the goods are sold. The "amount for which the goods are sold" embraces all costs relating to the goods and can include costs such as freight. It is accepted, however, that freight does not form part of the taxable sale value of goods where the terms of the contract of sale provide for the property in the goods to pass to the purchaser at the vendor's premises.

2. It has been a longstanding practice for soft drink manufacturers to deliver their goods to retailers. Delivery is very often effected by a third party contractor on behalf of the manufacturer. It is not general practice for retailers to collect their goods from soft drink manufacturer's warehouses although that sometimes occurs.

3. Soft drink manufacturers have sought exclusion of delivery charges from the sale value of soft drinks on the basis that property in the goods passes to retailers at the factory premises and thus the taxing point for the goods occurs when the soft drinks are placed on the delivery vehicle.

FACTS

4. Broadly three situations can arise -

(a)

one order will be large enough to be a complete truck load;

(b)

a truck will be loaded with a number of specific orders, i.e. the drinks loaded will match the orders placed with no additional drinks loaded - often referred to as route sales; or

(c)

a truck is loaded to supply small orders of retailers where the order is only obtained when the driver arrives at the retail premises.

5. One of the general rules about the passsing of property in goods is that property cannot pass until the goods are ascertained. In case (a) above, a single order is involved and clearly at the time of loading the drinks onto the delivery truck they are ascertained goods. Whether or not a freight charge can be excluded from the sale value of such goods depends on the terms of the contract entered into by the parties.

6. In case (b) it is doubtful if the goods could be said to be ascertained at the point of loading. This is because a number of orders are involved which make up the delivery load. In such a situation it could be that the goods are not ascertained until they are separated from the bulk load at the customer's premises which implies that the drinks are sold on a delivered into store basis and freight thus forms part of the taxable sale value. This view would be supported by the fact that in some instances no delivery is made if payment is not received from the retailer. This indicates a C.O.D. contract and ordinarily in a C.O.D. contract freight forms part of the taxable sale value. However, it is also true in some cases that the goods are ascertained because of the way in which the trucks are loaded i.e., each customer's order is loaded separately.

7. In case (c) the goods are clearly not ascertained until the order is placed by the retailer at his premises. Property in the goods does not pass until that point of time.

RULING

8. While it is not entirely free from doubt, it is accepted that where a truck is loaded with a number of specific orders and the truck only carries those specific orders, that the goods are ascertained at the point of loading at the manufacturer's premises. It follows that property in the goods may pass at this point of time, where this would be consistent with the terms of the contract for the sale of the goods. The fact that the soft drinks may not be delivered because of adverse factors such as no payment or the customers premises are closed does not affect the issue of passing of the property. The issue of passing of the property will depend on the terms of the contract and the factual dealings of the parties involved.

9. In situations (a) and (b) above, the goods may be sold on an ex-factory or F.I.S. basis, depending on the terms of the contract. Where it is clear from the terms of trading the goods are sold F.I.S., the sale value on which tax is payable includes the freight charges incurred in delivering the goods to the customer because this cost forms part of the amount for which the goods are sold, the price fixed being on a delivered into store basis. In situation (c) the goods will be sold always on an F.I.S. basis so the taxable sale value will always include the freight charges.

10. Where the terms of the contract provide for the goods to be sold ex-factory, the freight charges do not form part of the taxable sale value. However, the only value that may be excluded from the taxable sale value is the cost of the delivery charges. Under an ex-factory contract it is expected that certain conditions would be satisfied for it to be maintained that property passes at the factory premises. These conditions, which also indicate the amount to be excluded from the taxable sale value, are as follows:-

1.

Property in the goods passes to the customer when the goods are loaded for delivery at the manufacturer's warehouse.

2.

It is open for the manufacturer to arrange for delivery of the customer's products; however, the customer must be free to take delivery of the goods at the manufacturer's premises or to make his own arrangements to effect delivery. The price payable for the goods shall be the "ex-store" price as per price lists and no additional charges shall be payable in respect of "ex-store" collections by customers.

3.

Where a sale is designated as a sale for cash, or is a cash sale, or is a sale C.O.D., the intention of the parties is that property will only pass on payment and payment unless waived, is in these circumstaces, a condition precedent to the passing of property in the goods. Thus all charges up to the point where property passes, i.e. on payment, will form part of the taxable sale value.

4.

Where goods are sold on an "ex-store" basis as in 1 above, any freight charges must be shown as a separate line item on price lists and as a separate item on invoices. Failure to do so will indicate that the taxable sale value is the full price charged.

5.

Specific allocation of particular goods to individual customers is required at the manufacturer's warehouse. In the case of route loading, i.e. milk bars, hotels, clubs, etc., where goods are pre-ordered and loaded onto delivery vehicles in accordance with those orders, and then delivered accordingly, it will be accepted that specific allocation has occurred subject to the following -

(a)

customers do not have the right to increase the content of their order from stock on the delivery vehicle;

(b)

where customers wish to take delivery of a lesser quantity than ordered, those goods not required must be the subject of a credit note for goods returned; and

(c)

in the event of breakages, theft, etc. of a customer's goods ex the delivery vehicles, sales tax is payable on those goods notwithstanding that the goods were not physically delivered to the customer's premises. The reason for this is that property has already passed to the customer at the warehouse as provided in 1 above. In the case of replacements for breakages, etc., tax will also be payable on those goods.

6.

All costs incurred up to the point of loading the goods onto delivery vehicles will form part of the taxable sale value for goods sold ex-warehouse. Thus picking and packing costs, administrative and selling costs and warehousing costs including loading onto the delivery vehicle form part of the ex-warehouse selling price.

7.

Where an outside carrier is used to deliver the goods the cost of transporting the goods will be limited to the price charged by the outside carrier.

8.

Customers must be made aware of their rights as above in price lists, conditions of sale, circular letters or any other relevant correspondence and the factual dealings must be consistent with those conditions.

COMMISSIONER OF TAXATION
12 December 1984

References

ATO references:
NO ST 22/51

Date of effect:
Immediate

Subject References:
SOFT DRINK MANUFACTURERS
- DELIVERY CHARGES

Legislative References:
SALES TAX ASSESSMENT ACT (NO. 1) PARAGRAPH 18(1)(a)