Were herbal extracts exempt when they were sold in dropper bottles labeled for use as a beverage?

Plain-English summary

The herbal extracts were plant extracts cold-processed in a mixture of alcohol and water. They were sold in one-ounce bottles with droppers, and the labels said “for use as a beverage.”

The original opinion treated the products as exempt food if they were sold as beverages and the labels or packages made no medicinal, curative, or dietary-benefit claims.

The official source later added a note saying medicinal claims are no longer used to distinguish food from medicine. The annotation was amended in 2010 and now states the condition in terms of beverage use and no dietary-benefit claim.

The same supporting opinion separately analyzed essential oils, ginseng with royal jelly, bee pollen, lecithin, alfalfa seeds, and powdered seaweed, algae, and wheatgrass. This page addresses only the herbal extracts.

Common questions

Did processing the extracts in alcohol make them taxable?

Not on the facts described. The source exempted the alcohol-and-water extracts when sold and labeled as beverages under the stated conditions.

What labeling condition remains in the amended annotation?

The label or package must not claim dietary benefits.

Do medicinal claims still control this classification?

The later note in the official source says medicinal claims are no longer used to distinguish a food product from a medicine.

Citations and references

• California Revenue and Taxation Code section 6359(c) (as cited)
• California Sales and Use Tax Regulations 1588 and 1602(a), including subdivisions (a)(1) and (a)(5) — cited elsewhere in the same opinion
• Annotation 245.0724 (11/17/08) — cited in the later official note concerning medicinal claims
• Redacted store's June 5, 1989 request for legal advice concerning multiple grocery and health-food products — referenced; not reproduced in the official PDF
• Board publication Tax Tips for Grocery Stores, including the product-classification section at pages 22-30 — stated as enclosed and relied on; publication copy not reproduced in the official PDF
• Revenue and Taxation Code section 6359 and Sales and Use Tax Regulation 1588 enclosures — stated as enclosed; enclosure copies not reproduced in the official PDF
• Herbal extracts and the store's essential oils, ginseng with royal jelly, bee pollen, lecithin, alfalfa seeds, dried seaweed, algae, and wheatgrass — composition, packaging, labels, use, and sale form described; underlying formulas, ingredient specifications, labels, packages, samples, invoices, and sales records not reproduced in the official PDF
• Annotation 245.0496's later medicinal-claim note and the current amended annotation text — published with the official sources; no amendment file or rulemaking record reproduced in the official PDF
• Possible later product sale, audit, assessment, refund claim, appeal, or other agency action — no follow-up or final outcome supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/245-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/245-0496.pdf

Original ruling text

245.0496

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 327-3400

August 23, 1989

Ms. [S]
--- --- --XXX - --- -----, CA XXXXX
F- -- XX-XXXXXX
Dear Ms. [S]:
I am writing in response to your June 5, 1989 request for legal advice regarding the application of sales tax to certain items sold at the [store]. I am enclosing the Board’s publication entitled “Tax Tips for Grocery Stores” which provides useful guidance and contains the relevant regulations. Generally, sales of food products for human consumption are exempt from taxation. Revenue and Taxation Code Section 6359 (enclosed) provides at subsection (c) that “[f]or purposes of this section ‘food products’ do not include medicines and preparations in liquid, powdered, granular, tablet, capsule, lozenge, and pill form sold as dietary supplements or adjuncts.” The following discussion clarifies the applicability of the rules to the specific items mentioned in your letter. Herbal Extracts These are plant extracts which have been cold processed in a mixture of alcohol and water. They are sold in a one-ounce bottle with a dropper. The label states “for use as a beverage.” The herbal extracts as described are exempt food products provided that they are sold as a beverage and provided that the label or packaging makes no claim to the product’s medicinal or curative qualities or to a dietary benefit.

Ms. [S]

-2-

August 23, 1989
245.0496

Essential Oils
These are products such as oil of clove, oil of fir, oil of lemon, etc. The oils are sold in one ounce bottles with no dropper. The labels contain no statement as to use. However, it is my understanding that “essential oils” sold in one ounce bottles are generally used as scents and not meant to be ingested. If this is correct, then the essential oils are not food products and are subject to sales tax. If you disagree with this, please send further information as to the use of “essential oils.” You should indicate the type of oil in which the essence is suspended, e.g., mineral, safflower, etc., as this information would be helpful in determining whether essential oils are food products. Ginseng Root/Royal Jelly This is sold as a whole or sliced dried root in a vial of liquid. The label states “liquid tonic to be taken orally. Ingredients: 20 mg. ginseng and 300 mg. royal jelly.” This product is exempt as a food product provided the label or package makes no claim of medicinal qualities or indicates that the product is sold as a dietary supplement or adjunct. Bee Pollen This product is sold in whole, bulk form. Bee pollen is an exempt food product provided the label or package makes no claim of medicinal qualities or indicates that the product is sold as a dietary supplement or adjunct. Lecithin This product is sold in whole, bulk form. Lecithin is an exempt food product provided the label or package makes no claim of medicinal qualities or indicates that the product is sold as a dietary supplement or adjunct. Please note that the section entitled “classification of products sold by grocers” at pages 22-30 of the enclosed publication lists both “lecithin complex” and “super lecithin” as taxable items. These products are taxable because they are sold as dietary supplements. Alfalfa Seeds This product is sold in whole, bulk form. The seeds are used to make alfalfa sprouts. Sales and Use Tax Regulation 1588 (enclosed) provides, in relevant part, that “[t]ax does not apply to sales of seeds … the products of which ordinarily constitute food for human consumption….” Therefore, alfalfa seeds used to make sprouts are exempt from sales tax.

Ms. [S]

-3-

August 23, 1989
245.0496

Dried Seaweed, Algae, and Wheatgrass
These products are sold in powdered form.
Regulation 1602(a) provides that “[t]ax does not apply to sales of food products for human consumption” (with certain exceptions). The definition of “food product” includes “health foods.” (Reg. 1602(a)(1).) Further, “unusual foods such as brewer’s yeast, wheat germ, and seaweed are not subject to tax except when their label states they are a food supplement or the equivalent.” (Regulation 1602(a)(5).) Dried seaweed, algae, and wheatgrass in powdered form are exempt food products provided that the label or packaging makes no claim to the product’s medicinal or curative qualities or to a dietary benefit. Please feel free to contact this office if you have further questions regarding the applicability of sales tax to items sold at the [store]. Sincerely,

Stella Levy
Tax Counsel

SCL:cl
Enclosures

A "medicinal claim" on the product label is no longer used as a basis for differentiating a food product from a medicine. Please see Annotation 245.0724 (11/17/08). RDT. 7/2/09.