TAXATION RULING NO. ST 2390

ST 2390

SALES TAX : GOODS PLACED INTO STOCK FOR SALE BY RETAIL BY A MANUFACTURER

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FOI status:

PREAMBLE

Under section 19 of Sales Tax Assessment Act (No.1) a sales tax liability arises when a manufacturer treats goods manufactured by him as stock for sale by retail. Sub-section 18(2) of the Sales Tax Assessment Act (No.1) sets out the sale values on which sales tax is calculated for goods treated by the manufacturer of the goods as stock for sale by retail.

2. This Ruling considers the point of time at which a sales tax liability arises where goods have been placed in the hands of an agent in a retail outlet by a manufacturer without a sale taking place.

3. Under the sales tax law there may be two kinds of manufacturers; the actual or physical manufacturer or a deemed manufacturer. The actual manufacturer is the person who physically produces the goods while a deemed manufacturer is a person who supplies goods to the physical manufacturer to be made up into a manufactured article that is then returned to the person supplying the materials for the purposes of sale. A person is also a deemed manufacturer where he supplies a master tape to a manufacturer for copying and the copies are for sale by him. Practical examples of a deemed manufacturer are:-

(a)

where an interior decorator gives fabric to another person to be made up into curtains for sale by the interior decorator, the interior decorator is deemed to be the manufacturer of the curtains; and

(b)

where a person supplies a video master tape to a dubbing house for video copies to be made that he requires for sale, that person is the deemed manufacturer of the copies and the dubbing house is deemed not to be the manufacturer.

4. While there can be both a physical manufacturer and a deemed manufacturer in the manufacture of goods, the law provides that the liability shall fall on the deemed manufacturer and not on the physical manufacturer. For the purposes of the application of section 19 it is considered that the term "manufacturer" as used in that section embraces a deemed manufacturer.

5. Goods may be placed by a manufacturer in a retail outlet of another person in three different situations:-

(a)

where a principal and agent agreement exists between the manufacturer and the retailer;

(b)

where the goods are placed on consignment with the retailer; or

(c)

where the goods are placed with a retailer under a sale or return contract.

RULING

6.

(a) Principal and agent

Where an agency agreement exists between the manufacturer (or deemed manufacturer) and the retailer, the retailer acts on behalf of the relevant manufacturer and any resulting sales are between the relevant manufacturer and the end user. Goods placed in a retail store by the agent have been placed into stock for sale by retail by the manufacturer or deemed manufacturer. Tax is payable when the goods are delivered to the agent on a sale value in accordance with sub-section 18(2) of the Sales Tax Assessment Act (No.1). The taxing point is reached when the goods are placed in retail stock and a liability to pay sales tax therefore arises at that time. There is no provision in the law that would allow a rebate of tax for unsold stock returned to the manufacturer. In this situation the manufacturer is in the same position as a retailer holding tax-paid stocks and who also is not entitled to any rebate of sales tax for unsold stock.

(b) Goods placed with a retailer on consignment

Where a manufacturer or deemed manufacturer sends goods out on consignment to a retailer for sale by the retailer as agent, the property in the goods remains with the relevant manufacturer until the goods are sold to the end user. The retailer does not acquire property in the goods at any time.

In FCT v York Motors Pty Ltd (1946) 73 CLR 459, Dixon J stated that acts indicative of an intention to appropriate or devote goods to retail sale would amount to open admissions of the requisite purpose and, if they were unmistakable, would naturally be regarded as sufficient to justify the imposition of liability.

Placing goods in retail premises for sale by retail while retaining ownership of the goods is an act indicative of an intention to devote the goods to retail sale. In these circumstances, therefore, the goods are placed into stock for sale by retail by the manufacturer. Tax is payable on a sale value determined by sub-section 18(2) when the goods are delivered to the retail outlet and, again, there is no provision for a rebate of tax on unsold goods returned to the manufacturer.

(c) Goods placed with a retailer under a sale or return contract

Where a manufacturer (or deemed manufacturer) places goods with a retailer on a sale or return contract he actually treats the goods as stock for sale by wholesale since the object in placing the goods with a retailer is to bring about a wholesale sale to the retailer. Under a sale or return contract, property in the goods passes to the retailer either when he makes a retail sale or when he signifies acceptance of the goods to the manufacturer. Tax is not payable on the goods, therefore, when they are placed in retail stock but, rather, when the wholesale sale is made (which takes place simultaneously with the retail sale). Being a wholesale sale, the sale value is determined by paragraph 18(1)(a) which is the price for which the goods are sold to the retailer. Unsold goods returned to the manufacturer have not passed the taxing point and therefore do not attract tax.

COMMISSIONER OF TAXATION
4 February 1988

References

ATO references:
NO 87/9537-1

Date of effect:
Immediate

Subject References:
MANUFACTURER - GOODS PLACED INTO STOCK FOR SALE BY RETAIL

Legislative References:
SALES TAX ASSESSMENT ACT (NO.1); SECTION 18
SALES TAX ASSESSMENT ACT (NO.1); SECTION 19

Case References:
- FCT v York Motors Pty Ltd
(1946) 73 CLR 459