Does Colorado charge sales tax on non-alcoholic beer, kombucha, sweetened bottled coffee, and insulin sold without a prescription?

Plain-English summary

A retailer asked the Colorado Department of Revenue whether sales and use tax applies to three specific products: non-alcoholic beer and kombucha, sweetened bottled coffee, and insulin sold without a prescription. The Department's bottom line: the first two are taxable, and insulin is exempt only when it's dispensed pursuant to a practitioner's direction (with documentation).

Colorado generally taxes tangible personal property — which includes food, drink, and drugs — unless a specific exemption applies. The key exemption here is for "food," which Colorado defines by reference to the federal SNAP (food-stamp) program. That definition is what decides each product:

Non-alcoholic beer and kombucha — taxable. These contain a trace of alcohol (under 0.5% ABV). SNAP excludes alcoholic beverages, and the USDA treats any product containing any amount of alcohol — explicitly including "non-alcoholic"/"near" beer — as ineligible. Because they fall outside the federal "food" definition, they fall outside Colorado's food exemption and are taxable.

Sweetened bottled coffee — taxable. Exempt food normally includes drinks, but "soft drinks" are specifically taxable. A "soft drink" is a non-alcoholic beverage containing sweeteners, and it does not include beverages with milk (or soy/rice/similar milk substitutes) or more than 50% vegetable or fruit juice. Bottled coffee that has sweetener but no milk fits the "soft drink" definition, so it's taxed.

Insulin without a prescription — exempt only with proof of a practitioner's direction. Insulin dispensed pursuant to the direction of a practitioner is exempt. Unlike the general prescription-drug exemption, the insulin exemption does not require a written prescription — a practitioner's "direction" is enough (and that direction may include a prescription). The catch: the seller must obtain and retain documentation showing the insulin qualifies. Without that proof, the insulin is taxable and the seller must collect the tax. The seller bears the burden of proving the buyer was eligible.

This is a General Information Letter — general guidance the Department is not bound by, not a binding ruling.

What this means for you

Grocers, convenience stores, and beverage retailers

Ring up non-alcoholic beer and kombucha as taxable — the trace alcohol knocks them out of the food exemption. Treat sweetened coffee drinks (and similar sweetened beverages) as taxable "soft drinks," but note the carve-outs: a beverage is not a taxable soft drink if it contains milk or a milk substitute (soy, rice, etc.) or is more than 50% fruit or vegetable juice. So an unsweetened or milk-based coffee drink may land differently than a sweetened, milk-free one.

Pharmacies and insulin sellers

You can sell insulin exempt without a formal prescription, but only if it's dispensed pursuant to a practitioner's direction and you keep documentation to prove it. If you can't document that, charge sales tax. Build the recordkeeping into your process — the Department puts the burden of proof on the seller.

Accountants and tax professionals

The food exemption rides on the SNAP definition (§ 39-26-102(4.5)(a), C.R.S.; 7 U.S.C. § 2012(k)), which excludes anything containing alcohol. "Soft drinks" are a statutory exception to the food exemption (§ 39-26-707(1.5), C.R.S.), with milk-content and juice-content carve-outs. The insulin exemption (§ 39-26-717(2)(b), C.R.S.) turns on "the direction of a practitioner," a lower bar than a prescription, but exemption documentation and seller due diligence under 1 CCR 201-4, Rule 39-26-105-3 are required.

Common questions

Q: Is non-alcoholic beer or kombucha taxed in Colorado? A: Yes. Both contain a trace of alcohol, and any product containing any amount of alcohol is excluded from the federal "food" definition Colorado uses for its food exemption — so they're subject to sales and use tax.

Q: Is sweetened bottled coffee taxed?
A: Yes, if it's sweetened and has no milk (or milk substitute) and isn't mostly juice — that makes it a taxable "soft drink." Beverages with milk/milk substitutes, or more than 50% fruit or vegetable juice, are not "soft drinks."

Q: Do I need a prescription for insulin to be tax-exempt? A: Not necessarily. Insulin is exempt if it's dispensed pursuant to a practitioner's direction, which can — but need not — include a prescription. However, the seller must keep documentation proving the insulin qualifies; otherwise it's taxable.

Q: Who has to prove the insulin was exempt?
A: The seller. The seller must exercise due diligence and retain enough information to show the purchaser was eligible for the exemption.

Q: Can I rely on this letter?
A: Treat it as guidance, not a guarantee. A General Information Letter is not binding on the Department and makes no determination for any specific taxpayer.

Q: Does this cover home-rule city taxes?
A: No. The Department administers state and state-administered local sales and use taxes only. Self-collected home-rule cities set their own rules — check with each city.

Citations and references

Statutes, rules, and authority:

• § 39-26-104(1)(a), C.R.S. and § 39-26-202(1), C.R.S. (sales and use tax on tangible personal property)
• § 39-26-102(15)(a)(I), C.R.S. (definition of "tangible personal property")
• § 39-26-707(1)(e), (2)(d), C.R.S. (food exemption)
• § 39-26-102(4.5)(a), C.R.S. (definition of "food," tied to the SNAP definition)
• 7 U.S.C. § 2012(k) (federal SNAP definition of food; excludes alcoholic beverages)
• § 39-26-707(1.5)(a), (2)(d)(I), C.R.S. (soft drinks are taxable)
• § 39-26-707(1.5)(b)(II), (2)(d)(II)(B), C.R.S. (definition of "soft drinks," with milk and juice carve-outs)
• § 39-26-717(2)(b), (3), C.R.S. (insulin exemption — dispensed pursuant to a practitioner's direction)
• § 39-26-717(1)(c), C.R.S. and § 12-280-103(40), C.R.S. (definition of "practitioner")
• § 39-26-717(2)(a), C.R.S. (general prescription-drug exemption, for contrast)
• 1 CCR 201-4, Rule 39-26-105-3 (seller's exemption documentation and due diligence; burden of proof on the seller)
• 1 CCR 201-1, Rule 24-35-103.5 (general information letter and private letter ruling procedure)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-24-003.pdf

Original ruling text

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

GIL 24-003
June 24, 2024
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Via Electronic Mail: XXXXXXXXX
Re: Taxability of Certain Beverages and Insulin
Dear XXXXXXXXX:
You submitted a request for a general information letter regarding the taxability of certain beverages and insulin. 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, and requires payment of a fee. For more information about general information letters and private letter rulings, please see 1 CCR 201-1, Rule 24-35-103.5. Issues Does Colorado impose sales and use tax on sales of the following products?

1. Non-Alcoholic Beer and Kombucha
2. Bottled Coffee with Sweetener
3. Insulin Sold Without Prescription
   Discussion
   Colorado generally imposes sales and use tax on non-alcoholic beer, kombucha, bottled coffee with sweetener, and insulin that is not dispensed pursuant to the direction of a practitioner. Colorado generally imposes sales and use tax on tangible personal property purchased at retail.1 “Tangible personal property” means corporeal personal property, and generally “embraces all goods, wares, merchandise, products and commodities, and all tangible or corporeal things and substances that are dealt in and capable of being possessed and exchanged.”2 Because food, which includes beverages, and drugs, like insulin, are tangible

1
2

Sections 39-26-104(1)(a) and 39-26-202(1), C.R.S.
Section 39-26-102(15)(a)(I), C.R.S.

GIL 24-003
June 24, 2024
Page 2
personal property, they are subject to state sales and use tax unless a specific exemption applies. First, you asked about non-alcoholic beer and kombucha, and you indicated that both of these products “by definition contain trace amounts of alcohol” that is less than 0.5% alcohol by volume (ABV). Colorado exempts from sales and use tax “food,”3 which means food for domestic home consumption as defined in 7 U.S.C. sec. 2012(k), as amended, for purposes of the federal food stamp program.4 The federal food stamp program referenced in Colorado statute is now the U.S. Department of Agriculture’s (USDA) Supplemental Nutrition Assistance Program (SNAP). “Food” generally includes food and drink,5 but the federal definition excludes alcoholic beverages.6 A USDA policy memo clarifies that, with the exception of “cooking ingredients,” "[a]lcoholic beverages are not eligible to be purchased with SNAP benefits."7 The USDA website further explains, "All other products that contain any amount of alcohol are ineligible for purchase with SNAP benefits. This includes low-alcohol beer (sometimes called ‘near beer’ or ‘non-alcoholic beer’) … and any other product containing alcohol."8 Because beverages that contain any amount of alcohol are excluded from the federal definition of “food,” non-alcoholic beer and kombucha are excluded from the Colorado exemption and are subject to Colorado sales and use tax. Second, you asked about bottled coffee-based beverages that contain natural or artificial sweeteners. Exempt food for domestic home consumption generally includes food and drink,9 but soft drinks are specifically subject to Colorado sales and use tax.10 “‘Soft drinks’ means nonalcoholic beverages that contain natural or artificial sweeteners. ‘Soft drinks’ do not include beverages that contain milk or milk products, soy, rice, or similar milk substitutes, or greater than fifty percent of vegetable or fruit juice by volume.”11 Coffee-based beverages that meet the definition of soft drinks because they contain sweetener but not milk products or substitutes are subject to Colorado sales and use tax. Finally, you asked about insulin sold without a prescription. Insulin in all its forms dispensed pursuant to the direction of a practitioner is exempt from Colorado sales and use tax.12 “Practitioner” means a person authorized by law to prescribe any drug or device, acting within the scope of the authority.13 While the statute sets forth that prescription drugs are exempt if dispensed in accordance with a prescription by a practitioner,14 it does not use such explicit language with the insulin exemption.15 As a result, insulin does not necessarily require a prescription to qualify for the exemption because it only needs to be dispensed pursuant to the 3

Section 39-26-707(1)(e) and (2)(d), C.R.S.
Section 39-26-102(4.5)(a), C.R.S.
5
1 CCR 201-4, Rule 39-26-102(4.5).
6
7 U.S.C. § 2012(k).
7
FOOD & NUTRITION SERV., U.S. DEPT. OF AGRIC., RPMD POLICY MEMORANDUM NO. 2020-03, FOOD DETERMINATIONS - ELIGIBLE FOODS (EXCLUDING MEAL SERVICES) (2020). 8 U.S. DEPT. OF AGRICULTURE, ASKUSDA, HTTPS://ASK.USDA.GOV/S/ARTICLE/ARE-COOKING-WINES-AND-FLAVOR-EXTRACTS-ELIGIBLEFOR-PURCHASE-WITH-SUPPLEMENTAL-NUTRITION-ASSISTANCE (last visited June 20, 2024). 9 1 CCR 201-4, Rule 39-26-102(4.5). 10 Sections 39-26-707(1.5)(a) and (2)(d)(I), C.R.S. 11 Sections 39-26-707(1.5)(b)(II) and (2)(d)(II)(B), C.R.S. 12 Sections 39-26-717(2)(b) and (3), C.R.S. 13 Sections 39-26-717(1)(c) and 12-280-103(40), C.R.S. 14 Section 39-26-717(2)(a), C.R.S. 15 Sections 39-26-717(2)(b), C.R.S. 4

GIL 24-003
June 24, 2024
Page 3
direction of a practitioner.16 The direction of a practitioner may include a prescription.17 Either the seller must obtain and retain sufficient information and documentation from the purchaser to verify that the insulin is exempt because it is being dispensed pursuant to the direction of a practitioner, or the insulin is subject to Colorado sales and use tax and the seller must collect the sales tax at the time of the sale.18 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 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 self-collected home-rule cities. You may wish to consult with those local governments that administer their own sales or use taxes about the applicability of those taxes. Visit our website at Tax.Colorado.gov for more information about state and local sales taxes. Thank you for your request. Sincerely,

Office of Tax Policy
Colorado Department of Revenue

16

Section 39-26-717(2)(b), C.R.S.
Sections 39-26-717(1)(c) and 12-280-103(40), C.R.S.
18
Paragraphs (1) and (2)(c) of 1 CCR 201-4, Rule 39-26-105–3. Also note that the seller must exercise due diligence with respect to any sale for which the purchaser claims exemption from sales tax, and the seller has the burden of demonstrating to the Department that the purchaser was eligible for the exemption. 17