Are energy drinks like Red Bull, and enhanced or carbonated waters, exempt 'food' or taxable in Colorado?

Plain-English summary

A taxpayer listed a variety of carbonated and non-carbonated energy drinks and asked whether they qualify as exempt food. The answer turns on a single test Colorado uses for its food exemption.

Colorado exempts food for domestic home consumption from state (and special-district) sales and use tax (§ 39-26-707). It defines that food by federal program eligibility: food that can be bought with food stamps (SNAP) or WIC funds (§ 39-26-707(1)(a), (b); 7 U.S.C. § 2012(g) and § 1786). So the Department simply asks: can you buy it with food stamps or WIC?

• Energy drinks — taxable. Some of the listed products are not SNAP-eligible at all, so they're taxable. For the rest, the Department checked with the USDA Food and Nutrition Service, which confirmed that Red Bull Energy Drink is not an allowable food under the food-stamp program. Because the other listed drinks appear similar to Red Bull, they too are taxable unless significantly different.
• Enhanced water — exempt (DOR Reg (39-)26-102.4.5(1)(a)(3)).
• Carbonated water — taxable (e.g., tonic water), unless it's carbonated water with sugar or sugar substitutes (DOR Reg (39-)26-102.4.5(1)(c)(1)).

One more wrinkle on local tax: food for home consumption is also exempt from state-administered city and county sales tax, unless that city or county elects to tax food (§ 29-2-105(1)(d)). The list of which localities tax food is in DRP 1002. (Self-collected home-rule cities set their own rules and aren't administered by the Department.)

What this means for you

Convenience stores, grocers, and beverage sellers

Don't assume a drink is exempt because it's a "beverage." The exemption tracks SNAP/WIC eligibility. Energy drinks (Red Bull and look-alikes) are taxable. Enhanced water is exempt. Plain carbonated water is taxable — but the same water with sugar or a sugar substitute is exempt. That sweetener line is easy to miss at the register.

The SNAP test is the shortcut

When you're unsure whether a food or drink is exempt in Colorado, the quickest check is: would SNAP/WIC pay for it? If yes, it's generally exempt food for home consumption; if no (energy drinks, plain sparkling water, hot prepared foods), it's taxable.

Watch local "tax on food" elections

Even exempt food can carry state-administered city/county tax if that locality has elected to tax food. Check DRP 1002 for the jurisdictions where you sell, and check separately with any self-collected home-rule city.

Common questions

Q: Are energy drinks taxable in Colorado?
A: Yes. They aren't eligible under the federal food-stamp program — the USDA confirmed Red Bull isn't an allowable SNAP food — so energy drinks are taxable, not exempt food.

Q: Is sparkling or carbonated water taxable?
A: Plain carbonated water (like tonic water) is taxable. Carbonated water with sugar or a sugar substitute is exempt. "Enhanced water" is exempt.

Q: How does Colorado decide what counts as exempt food?
A: It uses federal SNAP/WIC eligibility. If an item can be purchased with food stamps or WIC funds, it's generally exempt food for home consumption.

Q: Does the exemption cover local sales tax?
A: Food for home consumption is also exempt from state-administered city/county tax unless that locality elects to tax food (see DRP 1002). Self-collected home-rule cities aren't covered by this letter.

Citations and references

Statutes, rules, and publications:
- § 39-26-707, C.R.S. — exemption for food for domestic home consumption
- § 39-26-707(1)(a), (b), C.R.S. — food defined by SNAP/WIC eligibility
- 7 U.S.C. § 2012(g); § 1786 — federal food-stamp and WIC definitions
- § 29-2-105(1)(d), C.R.S. — state-administered city/county food exemption unless the locality elects to tax food
- DOR Reg (39-)26-102.4.5(1)(a)(3) — enhanced water (exempt)
- DOR Reg (39-)26-102.4.5(1)(c)(1) — carbonated water (taxable unless sweetened)
- DRP 1002 — list of state-administered localities and whether they tax food

Related Colorado food/exemption letters:
- [[gil-08-018-inquiry-re-sales-and-use-taxes]] — supplements, OTC medicines, and toiletries are not exempt food (also tracks the SNAP definition)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-07-002.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2007-2
XXXXXXXXXXXX
Attn: XXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
December 4, 2007
Re: energy drinks
Dear XXXXXXXXXX:
This letter is in response to your letter to the Colorado Department of Revenue, dated August 23, 2007, re:
taxability of energy drinks, carbonated and non-carbonated. We apologize for the time it has taken to respond
to your inquiry.
Colorado Department of Revenue provides informational letter as a service to taxpayers. These letters
represent the opinion of knowledgeable and experienced department staff and can be a valuable resource in
making informed decisions regarding your tax obligations. However, these letters are not binding on the
department. §24-35-103.5, C.R.S.
Issue
Are energy drinks non-taxable foods?
Background
You list by name a variety of drinks and ask if they qualify as exempt food.
Discussion
Food is exempt from state and special district sales and use tax if it is for domestic home consumption. §39-26707, C.R.S. Food for domestic home consumption is defined as food that is eligible for purchase under the
federal food stamp program and Special Supplemental Nutrition Program for Women, Infants and Children
(WIC). See §39-26-707(1)(a) and (b), C.R.S.; 7 U.S.C. §2012(g) and §1786. Therefore, we look to see if the
food in question can be purchased with food stamps or WIC funds.
You state that some of the products are not eligible under the food stamp program. Therefore, those products
are taxable in Colorado. As for the remaining drinks listed in your letter, it is not possible to determine from
your list whether the products qualify under the federal food stamp program or WIC program. As a general
observation, it appears that the products are similar to Red Bull Energy Drink (which is also on your list). We
checked with the Colorado field office for the Food and Nutrition Service of the United States Department of
Agriculture, which informed us that the USDA has determined that Red Bull Energy Drink is not an allowable
food under the food stamp program. Therefore, and unless the other drinks you listed are significantly different
from Red Bull Energy Drink, they are also taxable.

You also ask if enhanced water is exempt. See, DOR regulation (39-)26-102.4.5(1)(a)(3). However,
carbonated water is not exempt (e.g., tonic water), unless it is carbonated water with sugar or sugar substitutes.
See, DOR regulation (39-)26-102.4.5(1)(c)(1).
You state in your letter that, “The Home Rule is followed in the state of Colorado...” It is not clear what you are
asserting. Colorado does have home rule cities and counties, which administer their own sales and use taxes.
I should also note that food for home consumption is also exempt from state-administered city and county sales
taxes, unless the city or county elects to tax food. §29-2-105(1)(d), C.R.S. The Department maintains a list of
state administered cities and counties and whether they tax food. See, DRP 1002 which is available on our
web site at http://www.revenue.state.co.us/PDF/drp1002.pdf.
Finally, the Department makes a good faith effort to provide accurate and complete answers to questions posed
to it by taxpayers. However, the information and answers provided here are not binding on the Colorado
Department of Revenue, nor do they replace, alter, or supersede Colorado law and regulations. The Executive
Director, who by statute is the only person having authority to bind the Department, has not formally reviewed
and/or approved this response.
Respectfully,

Colorado Department of Revenue
Office of Tax Policy