Were Optifast 70 and Optifast 800 exempt even though their 420- and 800-calorie daily regimens did not meet the 900-calorie complete-dietary-food example?

Plain-English summary

Optifast 70 and Optifast 800 were used as the exclusive meal replacement during the weight-loss phase of a physician-supervised program. They were available only by prescription and not to the general public.

The products supplied the vitamins and minerals for which recommended daily allowances had been established, along with trace elements. But Optifast 70 supplied only 420 calories when used as the sole nutrition source, and Optifast 800 supplied 800 calories. Both fell below the regulation's 900-calorie example, so counsel concluded they were not complete dietary foods under Regulation 1602(a)(5).

That did not make the sales taxable. The Board had previously treated obesity as a disease, and a substance intended for internal use to treat disease could qualify as medicine under Regulation 1591(b)(1).

Because a physician had to furnish Optifast to patients by prescription in the medically supervised obesity program, sales of Optifast 70 and 800 were exempt under Regulation 1591(a)(2) as prescription medicines.

Common questions

Did Optifast qualify as a complete dietary food?

No. The source said its 420- and 800-calorie regimens did not meet the regulation's 900-calorie example.

Why were the sales exempt anyway?

The products were prescription-only preparations furnished by physicians in a supervised program to treat obesity, which the source treated as a disease.

Would an over-the-counter meal-replacement product receive the same result?

The letter did not say so. Its medicine exemption depended on prescription-only availability and physician furnishing in the described treatment program.

Citations and references

• California Revenue and Taxation Code sections 6051, 6359, and 6369 (as cited)
• California Sales and Use Tax Regulations 1591 (including subdivisions (a), (a)(2), and (b)(1)), 1602 (including subdivisions (a)(1), (a)(2), and (a)(5)), and 1603 (as cited)
• Source-printed Title 28, California Code of Regulations reference for Regulation 1591 — as printed without a separate title citation or correction
• Federal Food and Drug Administration regulations establishing listed vitamin and mineral minimum daily requirements — quoted through Regulation 1602(a)(5) without a separate federal citation
• Redacted program controller's February 6, 1992 letter requesting a judgment on Optifast products — request referenced but not reproduced in the official PDF
• Medical director's statement describing the program, prescription-only access, physician supervision, exclusive meal replacement, and nonpublic availability — statement quoted in part but not reproduced in the official PDF
• Optifast 70 and Optifast 800 nutritional information supplied with the request — attachment referenced but not reproduced in the official PDF
• Prior Board-staff research into Optifast vitamins, minerals, trace elements, and calories — findings described without the research, nutrition tables, methodology, or supporting record
• Prior determination that obesity is a disease and that internally applied treatments qualify as medicines under Regulation 1591(b)(1) — position referenced without an identifier, date, analysis, or supporting record
• Optifast prescription and physician-furnishing facts — medical-director representation supplied; prescriptions, patient records, physician records, program protocols, invoices, and sales records not reproduced in the official PDF
• Sales and Use Tax Regulations 1591 and 1602 enclosures — stated as enclosed; enclosure copies not reproduced in the official PDF
• Possible later prescription, furnishing, product sale, program change, audit, assessment, refund claim, appeal, or Board 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/245-1263.pdf

Original ruling text

245.1263

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

March 16, 1992

Mr. [C]
Controller
[W]
--- --- --- District
XXXX --- -----, California XXXXX-XXXX
RE:

S- --- XX-XXXXXX
Optifast Program

Dear Mr. [C]:
I am responding to your letter to the Legal Division dated February 6, 1992. You have requested a judgment concerning the tax status of the products sold under the above program. We note that the Board Staff does not make judgments. It also may not issue tax rulings; only the Board itself may do that. We can, however, give you our opinion regarding the correct application of tax to a given set of facts. You attached to your letter a statement from Dr. [S], Medical Director of (presumably) the Optifast Program, as to its operation, and nutritional information on the Optifast 70 and 800 products. Dr. [S] states as follows: “The [W] Weight Management Program currently utilizes Optifast 70 and Optifast 800 food replacement formula which is manufactured by [S]. “Patients participating in this program are medically supervised by a physician during their weight loss phase and consume Optifast formula exclusively. “This product is available by prescription only and is not available to the general public. It is not used as a nutritional supplement but for total meal replacement.”

Mr. [C]

-2-

I.

OPINION

A.

Sales and Use Tax Generally

March 16, 1992
245.1263

In California, except where specifically exempted by statute, Revenue and Taxation Code Section 6051 imposes an excise tax, computed as a percentage of gross receipts, upon all retailers for the privilege of selling tangible personal property at retail in this state. (Unless otherwise stated, all statutory references are to the Revenue and Taxation Code.) B.

Food Products Exemption

Revenue and Taxation Code Section 6359, interpreted and implemented by Regulations 1602 and 1603, provides an exemption from sales and use taxes for the sales of food products for human consumption under certain circumstances. Subdivisions (1) & (2) of Regulation 1602(a) contain a list of products which, either singly or in combination, are considered “food products.” Regulation 1602(a)(5), however, excludes certain items from the definition of “food products” as follows: “(5) ‘Food products’ do not include any product for human consumption in liquid, powdered, granular, tablet, capsule, lozenge, or pill form (A) which is described on its package or label as a food supplement, or dietary adjunct, and to any such product (B) which is prescribed or designed to remedy specific dietary deficiencies or to increase or decrease generally one or more of the following areas of human nutrition: 1. 2. 3. 4.

Vitamins
Proteins
Minerals
Caloric intake”

Regulation 1602(a)(5), subsequently, however, restricts the limitation on the definition of “food products” as follows: “Tax, however, does not apply to any such products which either are exempted by Section 6369, respecting prescription medicines, or are complete dietary foods providing the user in the recommended daily dosage with substantial amounts of vitamins, proteins, minerals and foods providing adequate caloric intake. An example of the latter is a food daily requirement providing the user with the following:

1. 70 grams of high quality protein
2. 900 calories
3. Minimum daily requirements as established by the regulations
   of the Federal Food and Drug Administration of the following

Mr. [C]

-3-

March 16, 1992
245.1263

vitamins: A, B1, C, D, Riboflavin, and Niacin or Niacinamide; the following minerals: Calcium, Phosphorus, Iron and Iodine.” C.

Prescription Medicines

Section 6369 interpreted and implemented by Title 28, California Code of Regulations, Regulation 1591 provides that sales of medicines, when prescribed and sold or furnished under certain conditions for the treatment of a human being, are exempt from sales or use tax. (Reg. 1591(a).) Subdivision (b)(1) of Regulation 1591 defines “medicines” to “mean and include any substances or preparation intended for use by external or internal application to the human body in the diagnosis, cure, mitigation, treatment, or prevention of disease and which is commonly recognized as a substance or preparation intended for such use.” D.

Tax Consequences to [W]

Our previous research has revealed that “Optifast” supplies all of the vitamins and minerals for which an RDA has been established as well as many trace elements for which RDA’s have not yet bee defined. Unfortunately, the product does not supply the daily caloric count set forth in the regulation. When used as the sole source of nutrition, Optifast 70 supplies 420 calories and Optifast 800 supplies 800. Therefore, these products do not qualify as “complete dietary foods” under Regulation 1602(a)(5). However, we note that Dr. [S]’s letter states that these products are available only by prescription and cannot be sold over the counter. We have previously determined that obesity is a disease and substances or preparations intended for internal application to the human body to treat obesity qualify as medicines under Regulation 1591(b)(1). Accordingly, we have thus concluded that sales of Optifast 70 and Optifast 800, because a physician must furnish them to his patients pursuant to a medically-supervised program for the treatment of obesity, are not subject to tax pursuant to Regulation 1591(a)(2). For your information, I have enclosed copies of Regulations 1591 and 1602. I hope the above discussion has answered your question. If you need anything further, please do not hesitate to write again. Sincerely,

John L. Waid
Tax Counsel
JLW:es
Enclosure:

Regulations 1591 & 1602