Is a soy-based sports-nutrition supplement sold through a multi-level marketing network exempt from New York sales tax as a dietary food?

Plain-English summary

Reliv, Inc. sells nutritional, dietary, and skin-care products in New York through a multi-level network of independent distributors, similar to Amway or Avon. One of its products, "ProVantage," is a soy-based sports-nutrition powder marketed on its label as boosting energy production, endurance, and lean muscle mass, strengthening the immune system, and supplying soy protein said to help protect against coronary artery disease, certain cancers, and menopausal symptoms. Reliv asked whether sales of ProVantage are subject to New York sales tax.

New York exempts food, food products, dietary foods, and health supplements sold for human consumption from sales tax. A product counts as a "dietary food" if it's intended for a special dietary use and its label makes a statement about the dietary properties its use is based on -- and products meant to substitute for or supplement the ordinary diet (like liquid diet products, artificial sweeteners, and vitamins) qualify. Because ProVantage's own label makes exactly these kinds of dietary-property claims, and the Department found it comparable to other exempt items listed in its own Publication 880 guide to taxable and exempt foods, ProVantage qualifies as both a dietary food and a health supplement -- so its sales are exempt from sales tax.

What this means for you

Sellers of nutritional supplements, protein powders, and sports-nutrition products

A supplement's own label claims matter directly to its tax treatment -- if the label frames the product around special dietary properties (boosting a bodily function, substituting for or supplementing the ordinary diet) rather than as an ordinary snack food or beverage, it can qualify for New York's dietary food/health supplement exemption regardless of how it's marketed (as a sports-performance product, in this case).

Multi-level marketers and direct sellers

The MLM distribution structure itself doesn't affect taxability -- what matters is the nature of the specific product being sold, evaluated the same way it would be for a retail food seller.

Accountants and tax professionals

This ruling illustrates how the Department cross-checks a labeled dietary/supplement claim against its own Publication 880 list of comparable taxable and exempt foods -- worth pulling that publication when advising a client on a borderline nutritional product.

Common questions

Q: Are all sports nutrition or protein products exempt from New York sales tax?
A: Not automatically -- it depends on whether the product's own label makes dietary-property or special-dietary-use claims that bring it within the "dietary food" or "health supplement" definitions, rather than presenting it as an ordinary snack or beverage.

Q: Does selling through a multi-level marketing network change how a product is taxed?
A: No -- the sales channel doesn't affect taxability; the product itself is evaluated the same way regardless of whether it's sold through independent distributors or ordinary retail.

Q: What does the Department look at to decide if something is an exempt "dietary food"?
A: Whether it's intended for a special dietary use and whether its label states the dietary properties on which that use is based, per 20 NYCRR § 528.2(c) -- the Department also compares the product to examples in its own Publication 880 guide.

Q: Does this ruling apply to my company's supplement product?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. Your product's own labeling and claims would need their own analysis.

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_76s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(76)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S970924A

On September 24, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Reliv, Inc., P.O. Box 405, Chesterfield, MO
63006-0405.
The issue raised by Petitioner, Reliv, Inc., is whether receipts from the
sales of its product called “ProVantage” are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner sells nutritional, dietary, and skin care products through a
multi-level network of independent distributors. Petitioner is considered an
“MLM” or multi-level marketer, like Amway and Avon, who ships its products to
various New York distributors for sale.
Petitioner submitted the label from its ProVantage product for review.
ProVantage is described on the label as “the ultimate in sports nutrition.” It
is a soy-based performance enhancer which scientifically stimulates energy
production while increasing endurance and lean muscle mass production. Nutrients
in ProVantage are said to boost the immune system, heighten clear thinking and
protect the body down to the cellular level. ProVantage provides protein from
soy, described on the label as “a source proven to protect the body from the
development of coronary artery disease, certain cancers and menopausal symptoms.”
Applicable Law and Regulations
Section 1105(a) of the Tax Law imposes sales tax on “[t]he 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:
(1)
Food, food products, beverages, dietary foods and health
supplements, sold for human consumption . . . whether or not the
item is sold in liquid form. . . .
Section 528.2(c) of the Sales and Use Tax Regulations provides:
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
TSB-A-97(76)S
Sales Tax

(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.
Opinion
According to the label on the product, ProVantage is scientifically
designed to enhance sports performance by supplying protein (from soy) to the
body which stimulates energy production and increases endurance and lean muscle
mass production. Nutrients in ProVantage promote general health and well being
by boosting the immune system, and protecting the body down to the cellular
level.
New York State Department of Taxation and Finance Publication 880, Taxable
and Exempt Foods and Beverages Sold at Retail Food Markets and Similar
Establishments, contains a partial list of foods and beverages that are taxable
or exempt from sales and use taxes when sold at retail food markets and similar
establishments. ProVantage is similar to certain other products listed in
Publication 880 which are not taxed for sales tax purposes.
ProVantage is
considered both a dietary food and a health supplement in accordance with Section
1115(a)(1) of the Tax Law and Sections 528.2(c)(1) and (2) of the Sales and Use
Tax Regulations and is therefore exempt from sales tax.

DATED: December 4, 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.