Which reviewed drink powders and supplement products were taxable under California's food-product rule?

Plain-English summary

The reviewed powders were taxable when they were designed to control calorie intake, labeled as supplements, or specially compounded to provide a high source of a nutrient.

Omnifit Meal Replacement Drink Mix and Fiber'n Mor were taxable because their materials promoted controlled or limited calorie intake. WOW and Go For It! were labeled phenylalanine supplements, Focus was called a choline supplement, and Be Your Best! supplied high levels of arginine; those products were also taxable.

Aloe Beta Lemon Drink was exempt. Neither its label nor the catalog made a special nutritional or supplement claim, so the memorandum treated it as a food product under Regulation 1602(a)(2).

Common questions

What was the memorandum's two-step test?

First, the product had to be in a listed form such as liquid, powder, tablet, capsule, lozenge, or pill. It was then taxable if labeled as a food or dietary supplement or adjunct, or if designed to address dietary deficiencies or change vitamin, protein, mineral, or calorie intake.

Why were Omnifit and Fiber'n Mor taxable?

Their materials presented them as controlling calorie intake.

Why was Aloe Beta Lemon Drink exempt?

Its label and catalog made no special claim that brought it within the supplement rule.

Citations and references

• California Revenue and Taxation Code section 6359(c) — broad food-product provision identified in the memorandum
• California Sales and Use Tax Regulation 1602(a)(5) — two-step supplement analysis applied in the memorandum
• California Sales and Use Tax Regulation 1602(a)(2) — food-product treatment applied to Aloe Beta Lemon Drink
• Jack Warner's December 17, 1993 and January 18, 1994 memoranda requesting advice during an audit — memoranda referenced but not reproduced in the official PDF
• Packages or labels for eight food products and a catalog describing the products — materials referenced and quoted in part but not reproduced in the official PDF
• Reviewed powder products: two Omnifit Meal Replacement Drink Mix versions, Fiber'n Mor, Aloe Beta Lemon Drink, WOW, Focus, Be Your Best!, and Go For It! — forms, calorie and amino-acid claims, supplement descriptions, and outcomes supplied; complete packages, labels, catalog, ingredients, formulations, nutrition data, samples, tests, invoices, audit workpapers, and sales records not reproduced in the official PDF
• Possible later return adjustment, product sale, audit determination, 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/245-1328.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum
To

:

Mr. Jack Warner
OH - District Principal Auditor

From :

John L. Waid
Tax Counsel

Subject:

S- -- XX-XXXXXX
“Food Supplement” v. “High Source of Nutrition”

245.1328
Date:

February 3, 1994

I am responding to your memoranda to the Legal Division dated December 17, 1993, and January 18, 1994. In the former, you sent copies of packages or labels for eight food products sold by this taxpayer. In the latter, you enclosed a catalogue which described the products at issue. You request our opinion as to whether the sales of these products are subject to tax under Regulation 1602(a)(5). OPINION In interpreting and implementing the broad provisions of Section 6359(c), Regulation 1602(a)(5) sets up a two-step analysis. The threshold question is whether or not the food product under discussion is in one of the enumerated forms- liquid, powdered, granular, tablet, capsule, lozenge, or pill. If so, then its sales are taxable if one of the two following conditions also occurs: (A) its label or package describes it as a food supplement, food adjunct, dietary supplement, or dietary adjunct; or (B) it is prescribed or designed to remedy specific dietary deficiencies or to increase or decrease generally the intake of vitamins, protein, minerals, or calories: “In determining whether a product falls within category (B), it is important whether the manufacturer has specially mixed or compounded ingredients for the purpose of providing a high nutritional source.” Bearing this standard in mind, we examine the items in question, all powders to be mixed with either water or milk:

1. Omnifit Meal Replacement Drink Mix. The labels for the two versions of this mix
   contain the following legend: “It is a hearty food with only 150 calories and added convenience when you are watching your diet, but don’t have time to prepare a meal.” The catalogue describes the products, in part, as follows: “Omnifit meals are calorie controlled to provide only 150 calories per serving when mixed with 8 oz. of water - 250 calories when blended with 8 oz.

Mr. Jack Warner

-2-

February 3, 1994
245.1328

of low fat milk.” It thus appears that this product is designed to control caloric intake and its sales are subject to tax under Regulation 1602(a)(5).

2. Fiber’n Mor. The label makes no claims, but the catalogue states that it “adds only 20
   calories to your daily caloric intake.” It thus appears that this product is designed to control caloric intake. Its sales are taxable under Regulation 1602(a)(5).
3. Aloe Beta Lemon Drink. Neither the label nor the catalogue makes any special claims
   for this product. It is thus a food product under Regulation 1602(a)(2) the sales of which are exempt from tax.
4. Wow, Focus, Be Your Best!, and Go for It!. WOW and Go For It! both contain 600
   mg. of phenylalanine, an amino acid, and the packages refer to both products as phenylalanine supplements. The package for Focus refers to it as a choline supplement as does the catalogue. The packet for Be Your Best! refers to it as supplying high levels of arginine, an amino acid, and the catalogue calls it an arginine supplement. The first three products are thus dietary supplements, and the fourth appears to have been specially compounded to provide a high source of arginine. Therefore, the sales of these products are taxable.

JLW:es