Are custom herbal formulas that a licensed acupuncturist prepares and sells to clients exempt from Colorado sales tax as prescription drugs, nonprescription drugs, or materials furnished by a licensed provider?
Plain-English summary
A licensed acupuncturist and Chinese herbalist prepares custom herbal formulas — tailored to each client's condition, mixed from a large inventory of Chinese herbs, each blend containing anywhere from two to twenty herbs — and sells them to clients. The acupuncturist asked whether these formulas qualify for Colorado's medical sales-tax exemptions: prescription drugs, nonprescription drugs, or materials furnished by a licensed provider (§ 39-26-717(1)(a) and (k)).
The Department's answer is no — they're taxable. And the reason has nothing to do with what the herbal formulas are. The Department said it didn't even need to decide whether the formulas count as prescription drugs, nonprescription drugs, or materials, because they fail the exemption on a different requirement: who furnishes them.
Each of those exemptions applies only when the item is furnished or prescribed by a "licensed provider," and the statute defines "licensed provider" as a person authorized to prescribe drugs under title 12, C.R.S. (§ 39-26-717(3)). Acupuncturists are licensed under title 12 — but their license does not include authority to prescribe drugs. The "practice of acupuncture" can include "the recommendation of herbs and dietary guidelines," and acupuncturists may procure (but not prescribe) certain injection-therapy substances, yet they are not authorized to practice medicine or to prescribe a prescription drug or controlled substance (the Department pointed to the Department of Regulatory Agencies' explicit statement to that effect).
The Department contrasted acupuncturists with professions that do have prescriptive authority — dentists, advanced practice nurses, and physician assistants are each statutorily granted (sometimes limited) authority to prescribe. Because an acupuncturist isn't in that category, the custom herbal formulas don't qualify for the exemption, and their sale is taxable.
What this means for you
Acupuncturists and herbalists
Selling custom herbal blends to your clients is a taxable retail sale of tangible personal property in Colorado, even though you're a licensed health professional providing care. The medical exemption hinges on prescriptive authority you don't have — recommending herbs isn't the same as prescribing drugs. Plan to collect and remit sales tax on these products, and consider a sales-tax license if you don't already have one.
Other non-prescribing health practitioners
The logic generalizes: if your license doesn't authorize you to prescribe drugs under title 12, the § 39-26-717 exemptions for provider-furnished drugs and materials won't reach what you sell, regardless of how therapeutic the item is. Providers with prescriptive authority (dentists, APNs, PAs, physicians) are positioned differently.
Accountants advising wellness and alternative-medicine clients
The dispositive term is "licensed provider" in § 39-26-717(3) — authority to prescribe under title 12. This is a status test about the seller, not a product test about the item, so don't get drawn into arguing whether an herbal blend is a "drug." Compare this with the provider-furnished-materials rulings where the furnisher was a prescriber. Watch the home-rule-city caveat.
Common questions
Q: Are custom herbal formulas sold by an acupuncturist taxable in Colorado?
A: Yes. They don't qualify for the medical exemptions because those require the item to be furnished or prescribed by a "licensed provider" — defined as someone authorized to prescribe drugs under title 12 — and acupuncturists aren't authorized to prescribe drugs.
Q: Doesn't the acupuncturist's license make them a "licensed provider"?
A: Not for this exemption. Acupuncturists are licensed under title 12, but "licensed provider" here specifically means authority to prescribe drugs. Acupuncturists may recommend herbs but cannot prescribe drugs, so they fall outside the definition.
Q: Would the answer change if the herbs were considered a "drug" or "material"?
A: No. The Department said it didn't matter whether the formulas are prescription drugs, nonprescription drugs, or materials — they fail because of who furnishes them, not what they are.
Q: Which providers can furnish exempt drugs or materials?
A: Those with statutory prescriptive authority — for example dentists, advanced practice nurses, and physician assistants — when they furnish items as part of professional services. The exemption tracks the power to prescribe.
Q: Can I rely on this letter?
A: Only as general guidance. A General Information Letter is not binding on the Department and makes no specific determination. For a binding answer on your facts, request a private letter ruling.
Citations and references
Statutes and rules:
- § 39-26-104(1)(a), C.R.S. (tax on sales of tangible personal property)
- § 39-26-717(1)(a), C.R.S. (prescription drugs furnished by a licensed provider)
- § 39-26-717(1)(k), C.R.S. (nonprescription drugs or materials furnished by a licensed provider)
- § 39-26-717(3), C.R.S. ("licensed provider" = person authorized to prescribe drugs under title 12)
- § 12-29.5-101 et seq., C.R.S. (acupuncture licensing; recommendation of herbs; no prescriptive authority)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: GIL-16-010.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL-16-010
June 23, 2016
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Custom Herbal Formulas
Dear XXXXXXXXXXXX,
You ("Taxpayer") submitted a request for guidance regarding the applicability of sales tax
on custom herbal formulas acupuncturists create and sell.
The Colorado Department of Revenue ("Department") issues general information letters
and private letter rulings. A general information letter provides a general overview of the
relevant tax issues, but is not binding on the Department. A private letter ruling provides a
specific determination for a specific set of facts, is binding on the Department but not on
the taxpayer, and requires payment of a fee. For more information about general
information letters and private letter rulings, please see Department Rule 1 CCR 201-1,
24-35-103.5 at www.colorado.gov/pacific/tax/letter-rulings
The Department treats this request as a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax
law and are not binding on the Department. If Company would like the Department to
issue a private letter ruling on the issue raised here, Company can submit a request and
pay the fee in compliance with Department Rule 1 CCR 201-1, 24-35-103.5.
Issue
Do custom herbal formulas Taxpayer prepares and sells qualify for exemption from sales
tax as prescription drugs, nonprescription drugs, or materials furnished by a licensed
provider?
Background
Taxpayer is an acupuncturist licensed by the Department of Regulatory Agencies and a
Chinese herbalist practicing in Colorado. Taxpayer prepares and sells custom herbal
formulas to clients. The custom herbal formulas are prepared for the specific condition of
the individual client, are assembled from Taxpayer's extensive inventory of Chinese herbs,
and may each contain anywhere from two to twenty herbs. Taxpayer requests guidance
regarding the taxability of these custom herbal formulas and their potential eligibility for the
sales tax exemption for prescription drugs.
Structure of Analysis
To determine whether custom herbal formulas are subject to tax, the Department will
examine the following questions:
1. Do the herbal formulas Taxpayer prepares and sells qualify for exemption under§ 3926-717(1)(a} or (k}, C.R.S.?
a. Is Taxpayer a "licensed provider" as defined by§ 39-26-717(3), C.R.S.?
Discussion
Colorado imposes sales tax on the sale of tangible personal property.1 However, a number
of medical products are exempt from the tax.2 Specifically exempted from taxation under §
39-26-717(1)(a) or (k), C.R.S. are:
"(a) All sales of prescription drugs dispensed in accordance with a prescription
by a licensed provider or furnished by a licensed provider as part of
professional services provided to a patient or client;" (emphasis added)
"(k) All sales of nonprescription drugs or materials when furnished by a
licensed provider as part of professional services provided to a patient;"
(emphasis added)
While it is unclear whether the custom herbal formulas Taxpayer prepares are prescription
drugs, nonprescription drugs, or materials as these terms are used in statute, they are
nonetheless ineligible for this exemption. Drugs, whether prescription or nonprescription,
and materials qualify for the exemption only if they are furnished or prescribed by a
licensed provider. For the purpose of the exemption, "licensed provider" is defined as a
"person authorized to prescribe drugs under the provisions of title 12, C.R.S."3
Acupuncturists are licensed under title 12, but they are not authorized to prescribe drugs.4
The "practice of acupuncture" may include "the recommendation of herbs and dietary
guidelines."5 Acupuncturists may also procure, but not prescribe, certain substances used
in injection therapy.67 However, acupuncturists are not authorized to practice medicine.8
1
§ 39-26-104(1){a), C.R.S.
§ 39-26-717, C.R.S.
3
§ 39-26-717(3), C.R.S.
4
§ 12-29.5-101, et seq., C.R.S.
5
§ 12-29.5-102(3.5)(a), C.R.S.
6
§ 12-29.5-102.5(2), C.R.S.
7
Despite the actions acupuncturists are permitted to perform, they are not authorized by statute
to prescribe drugs. By contrast, several other professions are explicitly granted (sometimes
limited) prescriptive authority. "A licensed dentist is authorized to prescribe drugs or medicine."
§ 12-35-114, C.R.S. ·The [state] board [of nursing] may authorize an advanced practice
nurse...to prescribe controlled substances or prescription drugs: § 12-38-111.6, C.RS. A
licensed physician "may delegate to a physician assistant licensed by the board...the authority
to prescribe medication, including controlled substances, and dispense only such drugs as
designated by the board."§ 12-36-106(5), C.R.S.
8
§ 12-29.5-102(3.S)(b), C.R.S.
2
2
DR 4010A (06/11/14)
Furthermore, the Department of Regulatory Agencies states explicitly that licensed
acupuncturists may not prescribe a prescription drug or controlled substance.9
Consequently, the custom herbal formulas Taxpayer prepares and sells do not qualify for
sales tax exemption as a prescription or nonprescription drug.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are
knowledgeable on state taxes issues. However, the Department does not make a specific
determination here on any of the issues raised and the Department is not bound by this
general information letter.
The Department administers state and state-administered local sales and use taxes. This
letter does not address sales and use taxes administered by home-rule cities and home
rule counties. You may wish to consult with local governments which administer their own
sales or use taxes about the applicability of those taxes. Visit our web site at
www.colorado.gov/tax for more information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this
redacted letter will be made public within 60 days of the date of this letter. Please let me
know in writing within that 60 day period whether you have any suggestions or concerns
about this redacted letter.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
9
3
https://www.colorado.gov/pacific/dora/Pharmacy_Prescriptive_Authority
DR 4010A (06/11/14)