Is Rogaine exempt from New York sales tax now that it's sold over-the-counter without a prescription?

Plain-English summary

Dr. Marvin Fader asked whether sales of "Rogaine" -- a topical 2% Minoxidil solution used to regrow hair in men and women with hereditary hair loss -- were subject to New York sales tax. Rogaine's active ingredient, Minoxidil, was originally an FDA-approved blood pressure medication from the 1970s; the FDA approved Rogaine itself as a prescription hair-loss treatment in 1988, and then, in February 1996, approved it for over-the-counter sale without a prescription, with no change to the product's formula.

The Department held that Rogaine's receipts are exempt from sales tax under Tax Law § 1115(a)(3), which covers products "consumed by humans for the preservation of health." Critically, the Department noted that the 1996 prescription-to-OTC switch made no difference to the tax analysis: unlike many other states, New York's exemption for drugs, medicines and health-preservation products does not turn on whether a doctor's prescription is required to buy the item.

What this means for you

Pharmacies, drugstores and other retailers of OTC health products

New York's drug/medicine exemption is broader than a simple "prescription-only" test. A product doesn't need to require a prescription to qualify -- what matters is whether it's recognized as a drug or medicine, or is otherwise a product consumed for the preservation of health, regardless of its prescription status.

Manufacturers whose products switch from prescription to OTC status

An FDA reclassification from prescription to over-the-counter doesn't automatically change a product's New York sales tax treatment. If a product was exempt as a drug, medicine, or health-preservation item before the switch, it generally stays exempt after, assuming the formula and use haven't changed.

Accountants and tax professionals

When a client's product changes FDA prescription status, don't assume the sales tax exemption analysis needs to be redone from scratch -- check whether the underlying Tax Law § 1115(a)(3) classification (drug/medicine or health-preservation product) actually depended on prescription status in the first place; in New York, it typically doesn't.

Common questions

Q: Does a product need a prescription to be tax-exempt in New York?
A: No. New York's exemption for drugs, medicines, and health-preservation products applies regardless of whether a prescription is legally required to purchase the item.

Q: Did Rogaine's 1996 switch to OTC sales change anything about its tax treatment?
A: No -- the ruling specifically states the OTC approval "had no bearing" on the existing exemption.

Q: Can another retailer or manufacturer rely on this ruling for a different product?
A: No. This advisory opinion binds the Department only as to Dr. Marvin Fader and the specific facts about Rogaine described; another product would need its own analysis under § 1115(a)(3).

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1115(a)(3) (drugs, medicines and health-preservation products exemption)
• 20 NYCRR § 528.4(a), (b) (definition of drugs and medicines; products for preservation of health)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_15s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(15)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S961212B

On December 12, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Dr. Marvin Fader, 23-35 Bell Blvd., Bayside,
New York 11361.
The issue raised by Petitioner, Dr. Marvin Fader, is whether receipts from
the sales of "Rogaine" are subject to sales tax.
"Rogaine," containing 2 percent Minoxidil, is a topical solution developed
and manufactured by Pharmacia & Upjohn, Inc. (formerly, The Upjohn Company) of
Kalamazoo, Michigan that is used as a hair regrowth treatment for men and women.
In 1988, the Food and Drug Administration (FDA) approved this product for sales
in the United States as a prescription drug to individuals with hereditary hair
loss or male pattern baldness (androgenetic alopecia). The active ingredient
Minoxidil that is contained in "Rogaine" was originally approved by the FDA in
the 1970’s as a treatment for high blood pressure (see, The United States
Pharmacopeia/The National Formulary, 1995, at page 1032).
In February 1996, the FDA approved the over-the-counter sales of "Rogaine,"
making it available for the first time without a physician’s prescription.
Petitioner has indicated and Pharmacia & Upjohn, Inc. has confirmed that this
product’s formula has not changed since its approval by the FDA in 1988. The
FDA, having determined that "Rogaine" could be used safely without a doctor’s
direct supervision, made this switch from prescription to over-the-counter sales
as part of its efforts to keep up with consumers’ wishes to be more involved in
their own health care (see, FDA Consumer, November 1996, at page 6).
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes tax on, "receipts from every retail
sale of tangible personal property, except as otherwise provided in this
article."
Section 1115(a)of the Tax Law provides in part:
Receipts from the following shall be exempt from the tax on
retail sales imposed under subdivision (a) of section eleven hundred
five and the compensating use tax imposed under section eleven
hundred ten:
*

*

*

-2­
TSB-A-97(15)S
Sales Tax

(3) Drugs and medicines intended for use, internally or
externally, in the cure, mitigation, treatment or prevention of
illnesses or diseases in human beings, medical equipment (including
component parts thereof) and supplies required for such use or to
correct or alleviate physical incapacity, and products consumed by
humans for the preservation of health but not including cosmetics or
toilet
articles
notwithstanding
the
presence
of
medicinal
ingredients therein or medical equipment (including component parts
thereof) and supplies, other than such drugs and medicines,
purchased at retail for use in performing medical and similar
services for compensation.
Section 528.4 of the Sales and Use Tax Regulations provides in part:
(a) Exemption. (1) Drugs and medicines intended for the use,
internally or externally in the cure, mitigation, treatment or
prevention of illnesses or diseases in human beings, medical
equipment (including component parts thereof) and supplies required
for such use or to correct or alleviate physical incapacity, and
products consumed by humans for the preservation of health are
exempt.
*
*
*
(b) Drugs and medicines.

(1) Drugs and medicines mean:

(i) 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;
(ii) articles (other than food) intended to affect the
structure or any function of the human body.
*

*

*

(3) Products consumed by humans for the preservation of health
include other substances used internally or externally, which are
not ordinarily considered drugs or medicines.
Opinion
Receipts from the retail sales of "Rogaine" are exempt from sales tax under
Section 1115(a)(3) of the Tax Law. The February 1996 approval by the FDA for the
over-the-counter sales of "Rogaine" had no bearing on this exemption from tax.

-3­
TSB-A-97(15)S
Sales Tax

Unlike many other states, New York’s sales tax exemption on drugs, medicines and
other products consumed for the preservation of health does not depend on whether
a physician’s prescription is required in order to purchase such a product.

DATED:

March 26, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.