Does a Colorado nutritional-products seller have to charge state sales tax on aloe drinks, fiber powders, a protein bar, and soy nuts that carry a 'Nutrition Facts' label?
Plain-English summary
The Colorado Department of Revenue ruled that six nutritional products sold by a multi-level marketing company — an aloe drink, a concentrated version of it, a powdered drink-mix version, a fiber drink mix, a protein bar, and a packet of roasted soy nuts — are all exempt from Colorado state sales tax as food.
The decisive fact is the product label. Colorado exempts "food," and it borrows the federal definition used by the USDA's SNAP (food stamp) and WIC programs. Those programs decide what counts as food by looking at the FDA-required label: an item that carries a "Nutrition Facts" label is food, while an item that carries a "Supplement Facts" label (and says "dietary supplement" on the front) is a dietary supplement, which the federal programs — and therefore Colorado — exclude from "food." Because the company represented that all six products bear "Nutrition Facts" labels, the Department treated them as exempt food.
The Department also flagged that the holding is automatic-update: "If the USDA alters this classification system for food, then this ruling is accordingly and automatically amended."
What this means for you
Supplement and nutritional-product sellers
The label controls. Two nearly identical products — say, a protein powder and a protein supplement — can come out differently on tax solely because one carries a "Nutrition Facts" panel and the other a "Supplement Facts" panel. Before you decide whether to charge Colorado state sales tax, check which FDA label each SKU actually bears; don't go by marketing language like "nutritional" or "wellness."
Direct-sales / MLM companies that collect on distributors' behalf
This company collected and remitted tax on its distributors' sales based on suggested retail prices. The ruling confirms that products sold only through a distributor network are not "food furnished by restaurants and like places," so the only question is the food definition — which the label answers. Sales for resale to your distributors are a separate wholesale question.
Accountants and tax professionals
The analysis runs entirely through § 39-26-102(4.5) and the SNAP/WIC food definition, with the FDA label as the proxy. Note the local-tax wrinkle: state-administered cities and counties may choose to tax food (the ruling gives Salida as an example), and self-collected home-rule cities set their own rules — so an item exempt at the state level can still be taxed locally.
Common questions
Q: What makes a nutritional product exempt "food" versus a taxable supplement in Colorado?
A: The FDA label. A "Nutrition Facts" label qualifies the item as food (exempt from state sales tax); a "Supplement Facts" label marks it as a dietary supplement, which is excluded from the food exemption and is taxable.
Q: Are protein bars and drink mixes taxable in Colorado?
A: In this ruling the protein bar, the powdered/liquid drink mixes, and the roasted soy nuts were all exempt because they carried "Nutrition Facts" labels. The product's form (bar, powder, liquid) didn't matter — only the label did.
Q: Does the food exemption also wipe out my local sales tax?
A: Not necessarily. State-administered local jurisdictions can choose to tax food (the ruling names Salida as one that does), and self-collected home-rule cities make their own rules. Check the DR 1002 rate sheet and each home-rule city.
Q: Does this ruling apply to my products?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to, and it explicitly cannot be relied on by anyone else. It shows the Department's reasoning, but your products and labels may differ.
Citations and references
Statutes and rules:
- § 39-26-104(1), C.R.S. (imposition of sales tax on retail sales)
- § 39-26-102(4.5), C.R.S. (definition of "food")
- § 39-26-707, C.R.S. (food exemption)
- USDA SNAP / WIC food definition (incorporated by reference); FDA "Nutrition Facts" vs "Supplement Facts" labeling
- DR 1002 (Colorado Sales/Use Tax Rates — shows which local jurisdictions exempt food)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: PLR-16-013.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR-16-013
April 25, 2016
XXXXXXXXXXXX
Attn: XXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
Re: Food and Nutritional Products
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXXX (“company") a request for a
private letter ruling to the Colorado Department of Revenue ("Department") pursuant to
Department Rule 24-35-103.5. This letter is the Department's private letter ruling. This
ruling is binding on the Department to the extent set forth in Department Rule 24-35103.5. This ruling cannot be relied upon by any taxpayer other than the taxpayer to whom
the ruling is made.
Issues
Are Products 1, 2, 3, 4, 5, and 6 (described below) subject to tax?
Conclusion
Products 1-6 are exempt from Colorado sales tax as food.
Background
Company is located outside of Colorado and is a multi-level marketing company that sells
its products exclusively to and through a network of independent distributors. Company
collects sales tax on distributor orders based off the suggested retail prices of the taxable
products and remits the tax on behalf of its distributors. Company's products have two
types of product labels: Nutrition Facts and Supplement Facts. All products in question
have Nutrition Fact labels, the determination of which is regulated by the U.S. Food and
Drug Administration.
XXXXXXXXXXXXXX ("Product 1") contains aloe and is purported to soothe the stomach,
supports nutrient absorption, and intestinal health. Product 1 is a liquid that can be drunk
straight or mixed with water or juice. Product 1 has a Nutrition Fact label.
XXXXXXXXXXXXXXXXXXXXXXXXXX ("Product 2") is a concentrated version of Product
1. Product 2 must be mixed with water or juice before drinking. Product 2 has a Nutrition
Fact label.
XXXXXXXXXXXXXXXXXX ("Product 3") is a powder drink mix of Product 1. Product 3
must be mixed with a beverage before drinking. Product 3 has a Nutrition Fact label.
XXXXXXXXXXXXXXXXXXXXXXXXX ("Product 4") is a powder drink mix that contains
soluble and insoluble fiber. Product 4 must be mixed with a beverage before drinking.
Product 4 has a Nutrition Fact label.
XXXXXXXXXXXXXXX ("Product 5") is a protein bar that has a Nutrition Facts label.
XXXXXXXXXXXXXX ("Product 6") is a packet of roasted soy nuts that has a Nutrition
Facts label.
Structure of Analysis
To determine whether Company's products are subject to tax, the Department will
examine the following questions:
1. Is the item taxable under § 39-26-104(1), C.R.S.?
a. Is the item tangible personal property sold or purchased at retail?
b. Is the item food or drink served or furnished in or by restaurants, cafes, lunch
counters, cafeterias, hotels, social clubs, nightclubs, cabarets, resorts, snack
bars, caterers, carryout shops, and other like places of business?
2. Is the item eligible for any exemptions?
a. Is the item exempt under § 39-26-707, C.R.S.?
i. Is the item "food" as defined in § 39-26-102(4.5), C.R.S.?
Discussion
Colorado levies sales tax on the sale of tangible personal property. Products 1, 2, 3, 4, 5,
and 6 are tangible personal property. Products 1, 2, 3, 4, 5, and 6 are not sold at
restaurants or like businesses because they are sold exclusively through a network of
independent distributors. Therefore, the question at issue is whether Products 1, 2, 3, 4,
5, and 6 are "food" as defined in § 39-26-102(4.5), C.R.S.
Food sold for domestic home consumption is exempt from sales and use taxes levied by
the State of Colorado. State-administered local tax jurisdictions have the choice to tax
food. Colorado defines "food" by adopting the definition of food used by the U.S.
Department of Agriculture's (USDA) Supplemental Nutrition Assistance Program (SNAP)
and Woman, Infants and Children (WIC) Program. These federal programs exclude
dietary supplements from the definition of food. Colorado incorporates these federal
requirements and limitations in its regulation of food.
Food is defined as:
(1) any food or food product for home consumption except alcoholic
beverages, tobacco, and hot foods or hot food products ready for
immediate consumption other than those authorized pursuant to clauses
(3), (4), (5), (7), (8), and (9) of this subsection;
To determine whether an item qualifies as food, USDA relies on the food
label required by the Federal Drug Administration ("FDA"). Items that carry
a "Nutrition Facts" label qualify as food under the SNAP and WIC
programs. A "dietary supplement" carries a "Supplement Facts" label and
explicitly states that it is a "dietary supplement" on the front of the
product. Therefore, food items that carry a "Nutrition Facts" label qualify as
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"food" for Colorado sales and use tax purposes, and items that carry the
"Supplement Facts" label are dietary supplements and do not qualify as
"food" for the Colorado sales tax exemption.
Pursuant to the definition of dietary supplement, the product has to be labeled as such.
Company represents that Products 1, 2, 3, 4, 5, and 6 bear "Nutrition Facts" labels and
not "Supplement Facts" labels. Because Products 1-6 bear a "Nutrition Facts" label, the
USDA treats these items as "food" under the SNAP and WIC programs. Thus, these
items are "food" for Colorado state and state-administered sales and use tax purposes. If
the USDA alters this classification system for food, then this ruling is accordingly and
automatically amended.
State-administered cities and counties have the option of taxing food. If they exempt food
from their sales tax they must use the same criteria used by the state in determining
which items are taxable and which are exempt. For example, food for domestic home
consumption purchased in Salida is exempt from state sales and use tax, but is subject to
Salida's sales tax because the city does not exempt sales of food.
You can refer to Colorado Sales/Use Tax Rates (DR 1002) to determine whether a city or
county taxes food. This publication, updated every January and July, indicates which
statutory cities, counties, and special districts have a sales tax exemption for food.
Contact home-rule cities to find out if they exempt food from sales tax.
The Department also administers the sales and use taxes for special districts, which
include the Regional Transportation District, Scientific and Cultural Facilities District and
Rural Transportation Authorities. These special districts exempt the same food items that
are exempt at the state level. Therefore, Products 1 - 6 are exempt from taxes levied by
these special districts.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please
note that the Department administers state and state-collected city and county sales
taxes and special district sales and use taxes, but does not administer sales and use
taxes for self-collected home rule cities and 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.
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company's representations. The ruling is null and void if any
such representation is incorrect and has a material bearing on the conclusions reached in
this ruling and is subject to modification or revocation in accordance to Department
Regulation 24-35-103.5.
This ruling is binding on the Department to the extent set forth in Department Regulation
24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom
the ruling is made.
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Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling 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 version of the ruling.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
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