Are over-the-counter acne products exempt from NY sales tax, and what makes a product an exempt 'acne preparation'?

Plain-English summary

A retailer asked what makes a product an exempt "acne preparation" and whether five specific products qualify: St. Ives Naturally Clear Blemish & Blackhead Control Apricot Scrub, Clearasil Ultra Rapid Action Pads, Clean & Clear Blackhead Eraser Face Scrub, OXY Maximum Face Wash, and Clean & Clear Persa-Gel 10. Each lists an active ingredient of 10% benzoyl peroxide or 2% salicylic acid and is labeled as an acne medication/treatment.

The Office of Counsel concluded all five are exempt:

• The exemption. Tax Law 1115(a)(3) exempts drugs and medicines intended for use in the cure, mitigation, treatment, or prevention of illness in humans (and products consumed for the preservation of health), but not cosmetics or toilet articles merely because they contain medicinal ingredients.
• What is an exempt acne preparation. The regulation defines drugs and medicines as articles recognized in the U.S. Pharmacopeia/Homeopathic Pharmacopeia/National Formulary and intended to treat disease, and example 4 of 20 NYCRR 528.4(b)(1) states that "acne preparations, including acne soaps, are exempt provided they contain a recognized drug or medicine." For what counts as a recognized acne drug, the Department looks to the FDA's list of acne active ingredients (21 CFR 333.310), which includes benzoyl peroxide up to 10% and salicylic acid up to 2%.
• Result. Because each of the five products' active ingredient is 10% benzoyl peroxide or 2% salicylic acid, they contain a recognized acne drug and are exempt (consistent with Publication 840). The base or vehicle used (oil, soap, scrub) and the delivery medium (pad, wipe) do not affect the exempt status.

What this means for you

Drugstores, pharmacies, and retailers of skin-care products

An over-the-counter acne product is exempt when it contains a recognized active acne drug -- in practice, benzoyl peroxide (up to 10%) or salicylic acid (up to 2%) per the FDA monograph. The format doesn't matter: a scrub, a soap, a wash, a gel, or a medicated pad can all be exempt as long as the active drug is there. A cosmetic with no recognized acne drug stays taxable even if it claims skin benefits. When in doubt, check the Drug Facts active-ingredient panel against the FDA list and Publications 840/instructions.

Common questions

Q: Are acne washes and scrubs taxable in New York?
A: Not if they contain a recognized active acne drug (e.g., 10% benzoyl peroxide or 2% salicylic acid) -- those are exempt acne preparations under 1115(a)(3).

Q: Does the product's form -- soap, scrub, gel, or medicated pad -- matter?
A: No. The base/vehicle and the delivery medium don't affect the exempt status; the active drug is what counts.

Q: How do I tell if the active ingredient counts?
A: Check the FDA's acne active-ingredient list (21 CFR 333.310) -- benzoyl peroxide up to 10% and salicylic acid up to 2% are recognized acne drugs.

Q: Is a plain cleanser with no acne drug exempt?
A: No. Without a recognized drug or medicine, it's a taxable cosmetic/toilet article even if it markets skin benefits.

Citations and references

• Tax Law section 1105(a) (tax on retail sales of tangible personal property)
• Tax Law section 1115(a)(3) (exemption for drugs and medicines)
• 20 NYCRR section 528.4(b)(1) (definition of drugs and medicines; base/vehicle/delivery medium)
• 21 CFR section 333.310 (FDA list of acne active ingredients)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2012.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a12_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-12(14)S
Sales Tax
July 5, 2012

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

PETITION NO. S111025D

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address redacted . Petitioner asks what is the definition of an acne preparation and
what products qualify as acne preparations, in particular naming five specific products.
We conclude that the five products are acne preparations and are exempt from sales tax.
Facts
Petitioner is a retailer that sells, among other products, acne products, including the
following: St. Ives Naturally Clean Blemish & Blackhead Control Apricot Scrub, Clearasil Ultra
Rapid Actions Pads, Clean & Clear Blackhead Eraser Face Scrub, OXY Maximum Face Wash,
and Clean & Clear Persa Gel 10. Each of the products lists an active ingredient of 10% benzoyl
peroxide or 2% salicylic acid, as well as a statement that the active ingredient is either an acne
medication or treatment. The product labels variously indicate that the products are or do the
following: “see fewer blackheads in two days;” “gently exfoliates to lift dirt and oil away;”
“reduces redness and pimple size in as little as 4 hours;” “exfoliates to prevent blemishes and
cleans pores;” and “the same acne medication prescribed by doctors.”
Petitioner notes that New York State Department of Taxation and Finance
(“Department”) Publication 840, A Guide to Sales Tax for Drugstores and Pharmacies, lists acne
preparations as an exempt “medicinal product.”
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 medicines 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. . .”.
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 “(6) [t]he base or vehicle used (oil, ointment, talc, etc.) and

-2-

TSB-A-12(14)S
Sales Tax
July 5, 2012

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 specifies
in example 4 that “acne preparations, including acne soaps, are exempt provided they contain a
recognized drug or medicine.”
The five specific products referenced by Petitioner expressly claim to treat topical acne.
In determining whether these products are acne preparations, the Department looks to guidance
from the U.S. Food and Drug Administration. Its regulations provide a list of acne active
ingredients in topical acne drug products. See 21 C.F.R. § 333.310 This list includes benzoyl
peroxide up to 10% and salicylic acid up to 2%. Because the active ingredient contained in these
five products is either 10% benzoyl peroxide or 2% salicylic acid, the five products contain a
recognized drug or medication for treating acne under 20 N.Y.C.R.R. § 528(b)(3). Consistent
with the guidance in Publication 840, these products are acne preparations and are exempt from
sales tax.

DATED: July 5, 2012

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.