Is a nutritional product sold through a multi-level marketing company subject to Kansas sales tax?

Plain-English summary

A company that distributes nutritional products, personal care products, and other consumer products in Kansas — selling through independent contractors who recruit other members — asked whether a particular nutritional product is subject to Kansas sales and use tax. The company already collects and remits Kansas sales and use tax on behalf of its team members under an agreement with the Department, and it submitted a product label for review.

The Department's answer: the product is taxable. The sale of this product is subject to Kansas sales tax. The Department gave the key reason: unlike many other states, Kansas taxes sales of groceries and food. So the product is taxable in Kansas whether or not it might be considered "food" in another state — the food-or-not characterization does not create an exemption in Kansas.

This is a short, direct determination: in Kansas, even items that would be treated as (often exempt) food or grocery products elsewhere are taxable, so a nutritional/dietary product sold at retail is subject to Kansas sales tax. (A companion ruling, P-2002-069, applies the same conclusion to two other products from the same distributor.)

What this means for you

Sellers of nutritional and dietary products

Do not assume a "food" or "supplement" label makes a product exempt in Kansas. Kansas taxes food and groceries, so nutritional and dietary products sold at retail are generally taxable — even if the same item is exempt as food in another state.

Multi-level marketing / direct-sales companies

If you sell through independent distributors in Kansas, you may (like this taxpayer) collect and remit the tax centrally on behalf of your team members under an agreement with the Department. Either way, the tax must be collected on these taxable retail sales.

The out-of-state "food" treatment doesn't carry over

A product's classification as food in another state has no bearing on Kansas taxability. Apply Kansas's own rules, under which food and groceries are taxed.

Common questions

Q: Is the nutritional product subject to Kansas sales tax?
A: Yes. The Department advised that the sale of the product is subject to Kansas sales tax.

Q: Why is it taxable when food is exempt in many states?
A: Unlike many other states, Kansas taxes sales of groceries and food, so the product is taxable regardless of whether it would be considered food elsewhere.

Q: We sell through independent distributors — who remits the tax?
A: This company collects and remits Kansas sales and use tax on behalf of its team members under an agreement with the Department; the tax is due on these taxable sales in any event.

Q: Does this ruling apply to my products?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and product and cannot be relied on as precedent by others, though it reflects the Department's general position that food and grocery items are taxable in Kansas. (A companion ruling, P-2002-069, reaches the same conclusion for two other products.)

Citations and references

• The Department's determination rests on the general rule that Kansas taxes sales of groceries and food (unlike many other states); the letter cites no specific statutory subsection.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-070

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 15, 2002

XXXX
XXXX
XXXX

RE: Your letter dated July 29, 2002

Dear XXXX:

Thank you for your recent letter. You company distributes nutritional products, personal car products and other consumer products in Kansas. You distribute these products through independent contractors, who recruit other members. You company collects and remits Kansas sales and use tax on behalf of the team members, pursuant to an agreement between your company and this department.

You ask if XXXXXX are subject to sales and use tax. You provided a product label for review. Sale of this product is subject Kansas sales tax. Unlike many other states, Kansas taxes sales of groceries and food. Accordingly, the sale of the product is taxable in Kansas, whether or not the product may be considered to be food in another state.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 08/19/2002 Date Modified: 08/19/2002

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