TAXATION RULING NO. ST 2380

ST 2380

SALES TAX : TAPESTRY, EMBROIDERY AND RUG KITS; SOFT TOY KITS; AND TAPESTRY FABRIC.

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FOI status:

May be releasedFOI number: I 1010169

PREAMBLE

The sales tax classification of tapestry, embroidery and rug kits, soft toy kits and tapestry fabric has recently been considered. The question at issue is whether tapestry, rug and other similar kits are goods sold in an unassembled state, in which case the kits would be classified according to the identity of the finished article (refer ST Ruling 2240), or whether the goods in the kit are classified separately by the operation of subsection 3(5) of Sales Tax Assessment Act (No.1)

2. Subsection 3(5) provides that where a sale and purchase, for one inclusive price, is made for goods upon the sale value of which sales tax is payable at a particular rate together with goods upon the sale value of which sales tax is payable at some other rate or is not payable, the respective amounts for which the goods are sold and purchased shall be deemed to be the amounts which, in the opinion of the Commissioner, would have been the sale prices of those goods if sold separately.

3. The purpose of the subsection is to establish separate sale values for goods when two or more goods which are taxable at different rates are sold for one inclusive price. The section permits a sale value to be fixed for each item that would have been its sale value if sold separately.

FACTS

4. Tapestry kits generally consist of tapestry fabric cut to size on which a design is stencilled, an instruction sheet, a picture of the finished article and wool/cotton/silk thread and/or a sewing needle. In some kits the fabric is attached to a frame while in other kits the frame is provided separately or may have to be purchased separately. Tapestry kits are generally sold to become wall hangings.

5. Embroidery kits are similar to tapestry kits except that cloth, usually linen, cotton or calico, is used as a base rather than tapestry fabric. Embroidery kits are sold to become tablecloths, doilies, wall-hangings, etc..

6. Rug kits consist of pre-patterned fabric, an instruction sheet and a picture of the finished product. Pre-cut wool and/or a latch hook may also be included. Rug kits are usually sold as a floor rug, a cushion cover or a wall hanging.

7. Pre-patterned tapestry, embroidery and rug fabric is also sold separately from the kits.

8. Soft toy kits consist of cloth fabric cut and shaped in the form of parts of a toy animal and an instruction sheet. Filling for the soft toy is generally not provided but purchased separately by the maker-up. There are various fillings available on the market.

RULING

9. The kits in question are considered not to be goods sold in an unassembled state. Although they may be described as a particular kind of kit, their final identity is not always known. For example, a tapestry kit when crafted may be used for a number of purposes. Also, unlike the unassembled kits mentioned in ST 2240, the kits are not simply assembled. They require a considerable amount of work by the maker-up to bring them to their finished state. It is considered that the kits consist of a number of separate articles for use by hobbyists and the like to handcraft goods. Each individual article of the kits is therefore classifiable individually for sales tax purposes in accordance with subsection 3(5).

10. Attention has been given to the classification of sections of fabric upon which a design has been stencilled, printed or painted, or otherwise marked, for use in making a tapestry, an embroidery or a rug. It is considered that once the sections of fabric have been cut to size and a stencil or design printed thereon and are marketed for use for a particular purpose, they lose their identity as piece goods. The same applies to felt and other cloth cut to shape for making soft toys. This is so whether or not the pieces removed from rolls or larger pieces of fabric are hemmed, stitched or otherwise processed. In classifying these fabric sections, it is considered that the most appropriate course is to classify them according to the classification of the finished articles of which they are marketed as parts. This provides for uniform treatment, particularly where some unworked fabric piece already has a specific identity. For example, the identity of a tablecloth or a doily is not affected by whether those goods are embroidered or not. Unembroidered tablecloths and doilies sold with embroidery kits are taxable at 10%, the same rate that applies to embroidered and other tablecloths and doilies.

11. Tapestry fabric is in a different position in that, as a stencilled piece of fabric, it may have no particular identity. There is a case for concluding that all such stencilled fabric pieces are taxable at the general rate of 20%. However, this would produce an anomalous position in relation to made-up goods such as rugs and cushions that are taxable at the rate of 10%. To provide for uniform tax treatment it is therefore accepted that, where a stencilled piece of fabric is cut to a particular size and sold for making up into a particular article, the fabric will be classified the same as the finished article, i.e., the fabric is a part of the finished article and is sold as such. Thus stencilled fabric sold in a cushion or rug kit will be taxable at 10% while stencilled fabric sold as a tapestry or wall hanging will be taxable at 20%.

12. Kit components that do not assume a particular identity will be taxable according to their own identity. Examples of such components are wool and cotton yarns, sewing needles and rug hooks and frames.

13. The classification of the individual goods contained in the kits are set out below:

(a)

fabric section on which a design is stencilled, etc - taxable in accordance with paragraphs 10 and 11 above;

(b)

cloth fabric cut and shaped in the form of parts of a toy animal - taxable at general rate;

(c)

coloured yarns (e.g. wool, cotton, silk thread) - exempt under paragraph (a) of sub-item 120(8), First Schedule;

(d)

embroidery hoop/frame - taxable at general rate;

(e)

sewing needle or latch hook - taxable at general rate;

(f)

container - taxable at general rate; and

(g)

instruction sheet/leaflet - exempt under sub-item 51(1), First Schedule.

14. Stencilled fabric that has been cut to size and sold separately, i.e., not in a kit, for use in making up tapestries or other embroidered articles is taxable at 20%, unless it can be shown that the stencilled fabric is a part of a product taxable at a different rate, in which case that rate will apply. An example would be a stencilled fabric cut to rug size and sold as a rug tapestry. Tax at the rate applicable to rugs, 10%, would then apply.

15. The following exempt rulings published in the Sales Tax Exemptions and Classifications are withdrawn:

.

Material upon which a design of an apron, d'oyley, cushion cover or table napkin has been imprinted. The mere imprinting of the design upon the material is not regarded as removing the goods from the category of piece goods (p.551);

.

Pieces of material that are for use in the making of a powder bag and that have been stencilled and hemstitched with a design for embroidering (p.551);

.

Pieces of tapestry canvas as cut from the roll with 'raw' and selvaged edges and with a design trammed or embroidered thereon (p.551);

.

Pieces of tapestry canvas (as cut from the roll with 'raw' ends and selvaged edges) that have a design hand-painted or hand-tinted thereon. (These goods are sold merely as a piece of cloth intended to be cut to a selected shape and used in the making of a hand-worked tapestry article.) (p.551);

.

Tapestry being figured piece goods (p.552); and

.

Tapestry canvas on which a design has been stencilled (p.552).

COMMISSIONER OF TAXATION
24 December 1987

References

ATO references:
NO 87/4120-4
BO SYD 22/C/2 368 304III

Date of effect:
Immediate

Subject References:
TAPESTRY, EMBROIDERY AND RUG KITS;
SOFT TOY KIT
TAPESTRY FABRIC

Legislative References:
SALES TAX ASSESSMENT ACT (No.1), SUBSECTION 3(5);
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; SUB-ITEMS 51(1)
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; 120(5) and
SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) ACT; 120(8), FIRST SCHEDULE