Were Medifast and Pro-Call 100 exempt as prescription medicines or as food products?

Plain-English summary

Board staff had previously told the CPA that the client's Medifast and Pro-Call 100 sales were not taxable. This follow-up letter clarified why.

The products qualified as exempt food products under Regulation 1602. Their exemption was not based on prescription-medicine treatment.

The change in legal basis did not change the client's purchasing treatment: both products could still be bought without tax. The letter also said that if these were the client's only products, the client did not need a seller's permit and should surrender the existing permit to the district office.

The earlier January 26, 1989 letter is discussed but is not included in the published source.

Common questions

Did the products need to qualify as prescription medicines?

No. The clarification expressly classified them as exempt food products instead.

Did the revised reasoning change the exemption?

No. The client could continue purchasing both products without tax.

Was a seller's permit required if the client sold nothing else?

The letter said no and instructed the client to surrender the permit if Medifast and Pro-Call 100 were the only products sold.

Citations and references

• California Sales and Use Tax Regulation 1602 (as cited)
• Robert Stipe's January 26, 1989 letter concerning Medifast and Pro-Call 100 — earlier advice referenced but not reproduced in the official PDF
• Board office's recently completed review changing the products' exemption basis from prescription medicines to food products — review referenced without a date, scope, analysis, or supporting record
• Medifast and Pro-Call 100 product evidence — product names, exemption, and purchasing treatment supplied; complete formulations, labels, directions, prescriptions, packages, samples, tests, invoices, and sales records not reproduced in the official PDF
• Existing seller's permit and instruction to surrender it at the Torrance District Office if the two products were the client's only items — permit record, sales mix, surrender, and district response not reproduced in the official PDF
• Possible later purchase, sale, permit surrender, 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/245-1241.pdf

Original ruling text

245.1241

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-5589

September 8, 1989

Mr. [O]
Certified Public Accountant
XXXX --- ---, Suite X
---, California XXXXX
[S]
S- -- XX-XXXXXX
Dear Mr. [O]:
On January 26, 1989, Mr. Robert Stipe of this office wrote to you regarding the correct application of tax to the gross receipts from sales of certain weight loss products, specifically Medifast and Pro-Call 100. We wish to clarify certain portions of Mr. Stipe’s letter. Mr. Stipe correctly informed you that your client’s sale of Medifast and Pro-Call 100 was not subject to tax. Our office has recently completed a review of this area. We have determined that these products are exempt from tax because they qualify as exempt “food products” pursuant to Sales and Use Tax Regulation 1602 rather than exempt prescription medicines. This change in the basis for the exemption, i.e., from medicines to food products, will not affect your client in that he may purchase both “Medifast” and “Pro-Call 100” on an ex-tax basis. If these products are the only items he sells, he would not be required to hold a seller’s permit. In this event, he should surrender his seller’s permit at the Torrance District Office, 690 West Knox Street, (213) 516-4300, as soon as possible. If you have further questions regarding this matter, we will be happy to discuss them with you. Very truly yours,

Mary C. Armstrong
Senior Tax Counsel
MCA:wak