Are antibacterial hand gels, soaps, and sanitizers exempt from NY sales tax as drugs, or taxable as cosmetics/toiletries?

Plain-English summary

The petitioner is a retailer selling a line of antibacterial products -- hand sprays, moisturizing hand lotion, gel sanitizers, foams, and soaps. Each product's Drug Facts label lists an antiseptic active ingredient (alcohol 68-72%, or triclosan 0.3%), states its purpose as "Antiseptic," and says it's used to decrease bacteria. The labels also tout cosmetic benefits -- leaving hands "clean," "soft," "lightly scented," "moisturized and looking younger," "conditioned," "virtually germ-free." The retailer argued the products are drugs (alcohol and triclosan are FDA-recognized antiseptics) bought to avoid illness, and so exempt under Tax Law 1115(a)(3).

The Office of Counsel concluded the products are taxable:

• The exemption excludes cosmetics/toiletries. Tax Law 1115(a)(3) exempts drugs and medicines, but expressly excludes "cosmetics or toilet articles notwithstanding the presence of medicinal ingredients therein." The regulations define cosmetics (applied to the body for cleansing, beautifying, promoting attractiveness) and toilet articles (held out for grooming -- soap is the textbook example) as taxable (20 NYCRR 528.4).
• Remove the antiseptic and they're toiletries. Based on the labeling, if the antiseptic ingredient were removed, these products would plainly be cosmetics or toiletries -- they cleanse, condition, beautify, and groom.
• Adding a drug doesn't transform them. The question is whether adding the antiseptic turns a cosmetic/toiletry into an exempt drug. It does not -- the statute resolves this directly ("notwithstanding the presence of medicinal ingredients"; Moore Medical, TSB-A-06(13)S; Skin Culture, TSB-A-99(38)S). That the medicinal ingredient boosts sales doesn't override the statute.
• Contrast -- a true antiseptic. In Mannatech (TSB-A-02(36)S), lotions were taxable cosmetics, but an antiseptic gel whose sole purpose was treating minor burns/cuts/bites to prevent infection was exempt. The line is the product's real character, not the mere presence of an active ingredient.

What this means for you

Sellers of personal-care and "medicated" toiletries

A soap, lotion, sanitizer, or wash that cleanses, conditions, beautifies, or grooms is a taxable cosmetic/toiletry even if it contains a recognized drug ingredient (an antiseptic, etc.). You can't make it exempt by adding -- or advertising -- a medicinal ingredient. The exemption is reserved for products whose real, primary character is a drug/medicine (like a true antiseptic gel for treating wounds). Look at what the product is and does overall, not its active-ingredient list. (Same doctrine as TSB-A-11(31)S, where moisturizers/makeup with SPF stayed taxable.)

Buyers

Expect sales tax on antibacterial soaps, sanitizers, and lotions sold as personal-care products.

Common questions

Q: My hand sanitizer/soap has an antiseptic drug ingredient -- is it exempt?
A: No. A cosmetic or toiletry stays taxable notwithstanding a medicinal ingredient. Cleansing/grooming products are taxable.

Q: When is an antiseptic product exempt?
A: When its real, sole purpose is a drug/medicine use -- e.g., a gel for treating minor wounds to prevent infection (Mannatech) -- not when it's a soap/lotion that also fights germs.

Q: Does marketing it for 'avoiding illness' change the result?
A: No. The product's overall character controls, and boosting sales with a medicinal ingredient doesn't override the statute.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1115(a)(3) (exemption for drugs and medicines; excludes cosmetics/toilet articles)
• 20 NYCRR section 528.4 (drugs, medicines, cosmetics, and toilet articles)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_58s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(58)S
Sales Tax
November 16, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S101013A

On October 13, 2010, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether sales of products from its antibacterial
product line are exempt from sales and use tax pursuant to Tax Law §1115(a)(3) and 20 N.Y.C.R.R. §528.4
as drugs intended to mitigate and prevent disease in humans.
We conclude that Petitioner’s antibacterial products are cosmetic and toilet articles, notwithstanding
the presence of medicinal ingredients, and that receipts from the sales of these products are tangible personal
property subject to State and local sales taxes.
Facts
Petitioner is a retailer that markets and sells, among other products, a line of antibacterial gels, soaps,
and sanitizers, including the following: Anti-Bacterial Hand Spray, Anti-Bacterial Moisturizing Hand
Lotion, Anti-Bacterial Hand Gel Sanitizer, Deep Cleansing Hand Gel, Anti-Bacterial Hand Foam, AntiBacterial Deep Cleansing Hand Soap, Anti-Bacterial Hand Gel Sanitizer, Anti-Bacterial Gentle Foaming
Hand Soap, Anti-Bacterial Moisturizing Hand Soap, Anti-Bacterial Deep Cleansing Hand Soap, and AntiBacterial Gentle Foaming Hand Soaps. Each of the products’ drug facts label lists an active ingredient of
either alcohol, between 68% - 72%, or triclosan 0.3%; identifies its purpose as “Antiseptic;” and describes
its use as “to decrease bacteria” on hands or skin. The product labels variously indicate that the products
leave hands “feeling clean and virtually germ-free;” “clean, soft and virtually germ-free;” “clean, lightly
scented and virtually germ-free;” “deeply cleansed and feeling smooth and soft;” “clean and conditioned;”
“gently cleansed and conditioned;” “lightly scented, feeling moisturized and looking younger, while
effectively fighting germs;” “lightly scented, deeply cleansed and feeling smooth and soft, while effectively
fighting germs;” and “lightly scented, gently cleansed and conditioned, while effectively fighting germs.”
Many of the products also tout their skin nourishing and softening effects.
Petitioner notes that alcohol and triclosan are considered drugs by the United States Food and Drug
Administration (“FDA”) and that the FDA has included them, in proposed rules, among the antiseptics
contained in topical antibacterial products that help mitigate the risk of disease and infection. Petitioner
avers that the products are marketed for their antibacterial properties and that customers purchase the
products to avoid illness.
Analysis
All retail sales of tangible personal property are subject to sales tax pursuant to Tax Law §1105(a),
unless otherwise exempted. Tax Law §1115(a)(3) provides an exemption for “[d]rugs and medications
intended for use, internally or externally, in the cure, mitigation, treatment or prevention of illnesses in
human beings … and products consumed by humans for the preservation of health but not including
cosmetics or toilet articles notwithstanding the presence of medicinal ingredients therein….”

-2-

TSB-A-10(58)S
Sales Tax
November 16, 2010

The Sales and Use Tax Regulations define “drugs and medicines” as “articles, whether or not a
prescription is required for purchase, which are recognized as drugs or medicines in the United States
Pharmacopeia, Homeopathic Pharmacopeia of the United States, or National Formulary, and intended for use
in the diagnosis, cure, mitigation, treatment or prevention of disease in humans;” and provides that “(2) [t]he
base or vehicle used (oil, ointment, talc, etc.) and the medium used for delivery (disposable wipe, syringe,
saturated pad, etc.) of a drug or medicine will not affect its exempt status.” 20 N.Y.C.R.R. § 528.4(b)(1)
The regulation lists “antiseptics” among the examples of exempt products.
The regulations define “cosmetics” as “[a]rticles intended to be rubbed, poured, sprinkled or sprayed
on, introduced into, or otherwise applied to the human body for cleansing, beautifying, promoting
attractiveness, or altering the appearance, and articles intended for use as a component of any such articles
are subject to tax.” “Toilet articles” are defined as “[a]ny article advertised or held out for grooming
purposes and those articles which are customarily used for grooming purposes, regardless of the name by
which they may be known are subject to tax. Example: Soap, toothpaste and hair spray are taxable toilet
articles.” 20 N.Y.C.R.R. §528.4(d).
Based upon the Petitioner’s product labeling, if the relevant antiseptic ingredient, either alcohol or
triclosan, were removed from each of the Petitioner’s antibacterial products, they would be classified as
cosmetics or toilet articles (“toiletries”) and thus not within the exemption in Tax Law §1115(a)(3). The
products are expressly designed to cleanse, beautify or promote attractiveness of a purchaser, or for
grooming purposes, as contemplated by 20 N.Y.C.R.R. §528.4(c) and §528.4(d), respectively.
The question for resolution is whether the addition of the antiseptic ingredients to these cosmetics
and toiletries transforms them into drugs and medicines eligible for the §1115(a)(3) sales tax exemption. It
does not. Tax Law §1115(a)(3) and 20 N.Y.C.R.R. §528.4(a)(3) directly address this issue by providing that
cosmetics and toiletries are taxable “notwithstanding the presence of medicinal ingredients therein.” See
Moore Medical LLC, Adv Op Comm T&F, April 16, 2006, TSB-A-06(13)S; Skin Culture Institute, Inc.,
Adv Op Comm T&F, August 4, 1999, TSB-A-99(38)S. Cf. Mannatech Incorporated, Adv Op Comm T&F,
July 25, 2002, TSB-A-02(36)S (lotions were deemed taxable cosmetics, but antiseptic gel the sole purpose of
which was the treatment of “minor burns, scratches, cuts, insect bites, and other minor skin conditions to help
prevent against infection,” was found to be exempt from sales tax). The fact that the presence of medicinal
ingredients enhances the products’ sales potential and enables the Petitioner to differentiate its products in
the marketplace does not override the express language of the statute and regulation.

DATED: November 16, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set
forth therein and is binding on the Department only with respect to the person or entity to whom it
is issued and only if the person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date
the Opinion is issued or for the specific time period at issue in the Opinion.