TAXATION RULING NO. ST 2165

ST 2165

SALES TAX: SALE OF GOODS BY WHOLESALE

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FOI status:

PREAMBLE

Sub-section 3(4) of Sales Tax Assessment Act (No. 1) deems a person to have sold goods if, in the performance of any contract (not being a contract for the sale of goods) under which he has received or is entitled to receive valuable consideration, he supplies goods the property in which (whether as goods or in some other form) passes, under the terms of the contract to some other person. Sub-section 3(1) of Sales Tax Assessment Act (No. 1) defines a sale of goods by wholesale to include the supply of goods to some other person in the circumstances specified in sub-section 3(4).

2. The scope of sub-section 3(4) is very wide. It deems a sale to take place wherever property in goods passes from one person to another in the performance of a contract under which the former is entitled to receive valuable consideration. A sale is deemed to take place, whether or not the goods lose their identity or their character as goods, during the course of the operations in which the contract is performed.

FACTS

3. In many service industries goods are used by the contractor in performing the service. For example -

(a)

Hairdressers use shampoos, conditioners, hair oils, tints and hair lacquers;

(b)

Beauty salons use artificial nail materials in the form of acrylic liquid, fine powder and nail polish;

(c)

Repairers or restorers of carpets, furniture, motor vehicle interiors and other cloth surfaces use sprays for protection against stains;

(d)

Cleaning contractors use polish, detergent etc.

4. In some instances the person performing the service may supply goods to the customer as part of the service, e.g. -

(e)

A hairdresser who supplies hairpins or hair clasps in providing a service to a customer;

(f)

A beauty salon which supplies artificial nails and/or artificial eyelashes in providing a service to a customer.

RULING

5. For sub-section 3(4) to apply property in goods, whether as goods or in some other form, must pass to the customer under the terms of the contract. While the cost of materials used by a contractor in performing a service is taken into account in determining the contract price for the service, it would be difficult to maintain that property in materials that are used by the contractor in performing a service, e.g. the shampoo used by a hairdresser, passes to the customer. The better view seems to be that the materials are applied by the contractor to his own use in carrying out the service and not supplied to the customer as goods or in some other form. It follows that sub-section 3(4) does not apply to deem expendable materials used by a contractor in carrying out a service to be sold to the customer.

6. Because the materials used by contractors in paragraphs 3(a) to (d) above are applied to own use the sales of the materials to the contractors are retail sales. In this situation the supplier to the contractor would satisfy any sales tax liability by paying tax on the goods at the time of purchase. Where the supplier operates from a tax-free stock, tax would be payable on the price for which he sells the goods by wholesale.

7. Durable goods supplied by a contractor in the course of carrying out a service are in a different position. The goods supplied retain their identity and property passes to the customer under the service contract. The goods are deemed to be sold by the contractor to the customer by the operation of sub-section 3(4). Examples of deemed sales are set out in paragraphs (e) and (f) above. The sales of such goods to the contractor is a wholesale sale and tax is payable on the price charged by the supplier to the contractor.

COMMISSIONER OF TAXATION
1 August 1985

References

ATO references:
NO 83/5376-0
BO BRIS K73

Date of effect:
Immediate

Subject References:
SALE OF GOODS BY WHOLESALE
DEEMED SALES

Legislative References:
SALES TAX ASSESSMENT ACT (NO.1); SECTION 3.