Did words such as 'carbohydrate' or 'energy' make sports energy drinks taxable dietary supplements designed to change caloric intake?

Plain-English summary

Assistant chief counsel withdrew two earlier memoranda and concluded that the sports energy drinks under review were nontaxable as a product category.

Words such as “carbohydrate” or “energy” on the label did not mean the beverages were designed to increase caloric intake within Regulation 1602(a)(5). The memorandum described them as little more than sugar and water, not supplements or adjuncts intended to remedy major dietary deficiencies or mineral depletion.

Instead, the products were marketed for temporary nutritional depletion caused by strenuous exercise. Counsel treated them as ordinary beverages and said minor differences among the products did not change the nontaxable result.

Common questions

Did the word “energy” make the drink a taxable supplement?

No. Label wording alone did not establish the nutritional-design purpose addressed by the regulation.

What kind of depletion did the products address?

Temporary depletion from strenuous exercise, not a major dietary deficiency or mineral depletion.

Did counsel preserve the two earlier memoranda?

No. The source begins by directing readers to disregard the February 24 and March 17, 1995 memoranda.

Citations and references

• California Sales and Use Tax Regulation 1602(a)(5) (as cited)
• Assistant Chief Counsel Gary J. Jugum's February 24 and March 17, 1995 memoranda concerning sports energy drinks — expressly withdrawn; memoranda not reproduced in the official PDF
• Further analysis supporting category-level nontaxability — conclusion stated without identified product names, request, assignment, study, testing, memorandum attachments, or other supporting record
• Sports energy drink labels, carbohydrate and energy wording, sugar-and-water composition, supplement or adjunct character, dietary or mineral depletion, and strenuous-exercise marketing — category facts described; formulas, ingredient specifications, complete labels, packages, samples, nutrition analyses, marketing materials, tests, invoices, and sales records not reproduced in the official PDF
• Copies to Dennis Fox, Susan Wengel, David H. Levine, Ronald L. Dick, John L. Waid, and Sophia Chung — copy list printed; copies and any follow-up not 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/245-1067.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82
Telephone: 445-3723

Memorandum
245.1067
To :

Mr. Glenn A. Bystrom
Deputy Director
Sales and Use Tax Department
MIC:43

Date:

May 29, 1996

From : Gary J. Jugum

Assistant Chief Counsel

Subject: Sports Energy Drinks

Please disregard my memoranda of February 24 and March 17, 1995, in regard to the referenced subject matter. Upon further analysis, it is apparent that sports energy drinks are nontaxable as a product category, without regard to wording such as “carbohydrate” or “energy,” which may appear on their labels. While these words may be related to “caloric intake,” these products are not “prescribed or designed. . .to increase or decrease. . .caloric intake” within the meaning of that phrase as it is used in Regulation 1602, paragraph (a)(5). The products in question are little more than sugar and water and not supplemental or adjunct items to remedy gross dietary deficiencies or gross mineral depletions. These products are marketed as responsive to transitory nutritional depletion resulting from strenuous exercise. In short, these products are nothing more than beverages. The entire product category is nontaxable as a food product, without regard to insubstantial differences between products.

GJJ:sr
cc:

Mr. Dennis Fox - MIC:92
Ms. Susan Wengel - MIC:85
Mr. David H. Levine
Mr. Ronald L. Dick
Mr. John L. Waid
Ms. Sophia Chung