Are quercetin-based dietary-supplement beverages, concentrates, powders, and chews exempt from NY sales tax as dietary foods/health supplements?

Plain-English summary

The petitioner is a California company that makes and sells a line of products it labels as dietary supplements: non-carbonated ready-to-drink beverages, liquid concentrates (mixed with water), powdered drink mixes, and ready-to-eat chews. The packaging says the products are "fueled by quercetin, a powerful antioxidant," lists ingredients, includes a Supplement Facts chart showing the % daily value of many vitamins (Vitamin C at 200-260% d.v., plus B-vitamins and Vitamin E at ~100-130% d.v.), and carries the standard FDA "not intended to diagnose, treat, cure or prevent any disease" disclaimer. The company asked whether these products are exempt from sales tax.

The Office of Counsel concluded they are exempt:

• The exemption. Tax Law 1115(a)(1) exempts "food, food products, beverages, dietary foods and health supplements, sold for human consumption." The regulation (20 NYCRR 528.2(c)) defines a dietary food as a food for special dietary use bearing on its label a statement of the dietary properties on which its use is based, and treats products that substitute for or supplement the ordinary diet -- expressly including vitamins -- as exempt.
• Application. The products' labels highlight their dietary properties (the antioxidant effect, increased energy), and the Supplement Facts panel shows they meet or exceed the daily recommended values for many essential vitamins -- so they supplement the ordinary diet. Sold for human consumption, they're exempt dietary foods/health supplements (Mannatech; Reliv).
• Contrast -- ordinary energy drinks. The result differs from TSB-A-10(49)S, where Red Bull and "Sugar Free Shots" were denied the exemption because they didn't meet/exceed the vitamin daily values, weren't intended to substitute for or supplement the ordinary diet, and lacked a dietary-properties statement on the label.

What this means for you

Makers and sellers of supplements and functional beverages

A product is an exempt dietary food/health supplement when it (1) supplements or substitutes for the ordinary diet -- e.g., meets or exceeds the daily recommended values for vitamins -- and (2) states its dietary properties on the label. Hitting both marks (real vitamin levels and a dietary-properties statement, ideally with a Supplement Facts panel) is what separates an exempt supplement from a taxable ordinary soft drink or energy drink. Marketing something as "energy" isn't enough; the label and the nutrition content have to do the work.

Retailers

Genuine dietary supplements with the right labeling are exempt; ordinary energy drinks and sodas that don't meet the test remain taxable.

Common questions

Q: Are dietary-supplement drinks taxable in New York?
A: No, if they qualify as dietary foods/health supplements -- supplementing the ordinary diet (e.g., meeting/exceeding daily vitamin values) and labeled with their dietary properties.

Q: Why are these exempt but Red Bull isn't?
A: These meet/exceed daily vitamin values and state their dietary properties; Red Bull (TSB-A-10(49)S) did neither, so it stayed taxable.

Q: Does the form (drink, powder, chew) matter?
A: No. Beverages, concentrates, powders, and chews can all qualify if the dietary-properties and supplement criteria are met.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1115(a)(1) (exemption for food, dietary foods, and health supplements)
• 20 NYCRR section 528.2(c) (dietary foods and health supplements)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(4)S
Sales Tax
February 18, 2011

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

PETITION NO. S101129B

On November 29, 2010, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether receipts from the sales of the products
that it markets and distributes as dietary supplements in the form of ready-to-drink beverages, liquid
concentrates, powdered drink mixes, and chews are subject to State and local sales and use taxes.
We conclude that Petitioner’s products are dietary foods and health supplements and that receipts
from the sales of these products are exempt from State and local sales and use taxes pursuant to Tax Law
§1115(a)(1) and 20 N.Y.C.R.R. §528.2(c).
Facts
Petitioner is a California corporation that manufactures and distributes a line of products directly
to consumers and through retailers under the name, name redacted, that it describes and labels as dietary
supplements. The products include: non-carbonated ready-to-drink beverages; non-carbonated liquid
concentrates designed to be mixed with water to make a beverage; powdered drink mixes designed to be
mixed with water to make a beverage; and individually wrapped, ready-to-eat chews. The products’
packaging indicates that they are “fueled by quercetin, a powerful antioxidant” that “works by triggering
the body’s ability to produce more real energy” or “activates your body’s own energy-producing
mechanisms.” The packaging also includes a list of ingredients; a Supplement Facts chart that states the
daily recommended percentage values (“% d.v.”) of vitamins contained in the product; and the federally
required legal disclaimers that statements made on the label have not been evaluated by the federal Food
and Drug Administration and that “[t]he product is not intended to diagnose, treat, cure or prevent any
disease.”
The products’ lists of ingredients vary somewhat depending upon the form of the product, but all
contain among other ingredients: quercetin, green tea leaf extract, citric acid, ascorbic acid (Vit. C - 200260% d.v.), Alpha Tocopheryl Acetate (Vit. E - 100-130% d.v.), Niacinamide (Vit. B3 - 100-130% d.v.),
Pyridoxine Hydrochloride (Vit. B6 - 100-130% d.v.), Riboflavin (Vit. B2 - 100-130% d.v.), Thiamine
Hydrochloride (Vit. B1 - 100-130% d.v.), and Cyanocobalamin (Vit. B12 -100-130% d.v.).
Antioxidants, such as quercetin, which is a flavanoid found in many fruits and vegetables, are
considered helpful in maintaining good health by inhibiting cell damage that contributes to a variety of
diseases and conditions. Quercetin is reported to have an antihistamine and anti-inflammatory effect.
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)(1) provides an exemption for “[f]ood, food
products, beverages, dietary foods and health supplements, sold for human consumption….”

-2-

TSB-A-11(4)S
Sales Tax
February 18, 2011

The Sales and Use Tax Regulations provide:
Dietary foods and health supplements:
(1) A dietary food is a food for a special dietary use for humans and
which bears on the label a statement of the dietary properties upon which its use is
based in whole or in part.
(2) Products which are intended to substitute for the ordinary diet, or
supplement the ordinary diet, or substitute for natural foods are exempt, when sold
for human consumption. Among these are liquid diet products, artificial
sweeteners and vitamins.” 20 N.Y.C.R.R. §528.2(c).
As required by the regulations, the labels of Petitioner’s products highlight their dietary properties
(i.e. their antioxidant effect), and that they are intended to increase the user’s energy. That they also
supplement the ordinary diet or substitute for natural foods is evident from the products’ ingredients and
the supplement facts chart that illustrates how the products support nutritional needs by meeting or
exceeding the daily requirements for many vitamins considered essential for good health. When sold for
human consumption, as Petitioner’s products are, these products are exempt from state and local sales
and use taxes. Tax Law §1115(a)(1); 20 N.Y.C.R.R. §528.2(c); See Mannatech Incorporated,
TSB-A-02(36)S; Reliv, Inc., TSB-A-99(4)S; Reliv, Inc., TSB-A-97(76)S; Cf. TSB-A-10(49)S (Exemption
for Red Bull Energy Drinks and Sugar Free Shots denied because the products were not intended to
substitute for natural foods or to supplement the ordinary diet by meeting or exceeding the daily
recommended values for vitamins and the products’ labels did not contain a statement of dietary
properties.)

DATED: February 18, 2011

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.