Is a chemical skin-peeling treatment exempt from New York sales tax as a 'drug or medicine,' even though the FDA and the state Board of Pharmacy both classify it as a drug?

Plain-English summary

Skin Culture Institute sells a chemical skin-peeling treatment marketed to treat acne scarring, large pores, sun-damaged skin, fine lines, and razor bumps -- a "6 Day Cosmetic Facial Treatment Kit" containing a sequence of facial creams applied on consecutive days, left on the face up to 90 minutes depending on strength, exfoliating dead skin to reveal smoother, clearer skin underneath. The formula (a mix of salicylic acid, sulfur, phenol, and resorcinol) predates the FDA's predecessor and requires no prescription; it's sold mainly to skin care salons, but also to doctors and directly to consumers. The company noted that both the FDA and the New York State Board of Pharmacy classify its product as a "drug" for their own regulatory purposes.

New York's sales tax exemption for "drugs and medicines" is written narrowly on purpose: it exempts products intended for the cure, mitigation, treatment, or prevention of illness or disease, but explicitly says that exemption does not extend to "cosmetics or toilet articles notwithstanding the presence of medicinal ingredients therein." The Department's regulations define cosmetics as anything applied to the body for cleansing, beautifying, promoting attractiveness, or altering appearance. That's the key distinction: federal and state "drug" definitions (used for FDA oversight and pharmacy-licensing purposes) are broader than New York's own sales tax exemption and specifically don't exclude cosmetics the way the tax exemption does -- so being classified a "drug" under those other regimes doesn't automatically make a product exempt from sales tax.

Applying its own cosmetics definition to the facts, the Department found this product squarely fits: it's marketed to improve appearance and treat complexion issues, applied by the user to promote attractiveness, and sold mostly to beauty salons -- exactly the kind of product the cosmetics carve-out is meant to catch, regardless of its genuine medicinal ingredients or its FDA/pharmacy-board drug status. As a result, the sale of the skin peeling treatment is fully subject to New York state and local sales and use tax.

What this means for you

Skin care, cosmetics, and personal-care product companies

An FDA or state pharmacy-board "drug" classification does not by itself exempt a product from New York sales tax -- the Department applies its own separate cosmetics-vs-medicine test focused on how the product is marketed and used (improving appearance/attractiveness vs. treating actual disease), and cosmetics are taxable no matter what medicinal ingredients they contain.

Beauty salons and skin care professionals buying treatment products

Don't assume a product is tax-exempt just because it contains active pharmaceutical ingredients or requires careful, timed application -- check whether it's genuinely marketed to treat a disease/illness versus improve appearance, since the latter stays taxable under New York's cosmetics carve-out.

Accountants and tax professionals

This ruling is a clean illustration that federal FDA classification and state sales-tax exemption analysis are two entirely separate legal tests -- a client's "our product is FDA-regulated as a drug" argument does not resolve the New York sales tax question on its own.

Common questions

Q: Does FDA regulation of a product as a "drug" automatically make it exempt from New York sales tax?
A: No -- New York's drug/medicine sales tax exemption specifically excludes cosmetics regardless of medicinal ingredients, and the FDA's "drug" definition is broader and doesn't carry that same cosmetics exclusion.

Q: What makes a personal-care product a "cosmetic" for New York sales tax purposes?
A: Anything applied to the body for cleansing, beautifying, promoting attractiveness, or altering appearance -- as defined in the Department's own regulations, independent of federal drug classifications.

Q: Would this product be exempt if it were sold only to treat a diagnosed skin disease, with no cosmetic marketing?
A: This ruling turned heavily on the actual marketing (appearance-improvement, complexion problems, sold mainly to salons); a product genuinely marketed and used solely for disease treatment could reach a different result, but that's not what the facts here showed.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1115(a)(3) (drugs and medicines exemption; cosmetics carve-out)
• 20 NYCRR § 528.4(c) (definition of cosmetics)
• 21 U.S.C. § 321(g)(1) (Federal Food, Drug, and Cosmetic Act definition of drug)
• 21 U.S.C. § 379 (Act does not apply to cosmetics unless also a drug or device)
• Education Law § 6802(7) (New York State Board of Pharmacy definition of drugs)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(38)S
Sales Tax
August 4, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990205A

On February 5, 1999, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Skin Culture Institute Inc., 38 West 32nd Street, Suite 1312, New York, New
York 10001. Petitioner, Skin Culture Institute Inc., furnished additional information by telephone
on March 4, 1999 and on June 17, 1999.
The issue raised by Petitioner is whether the chemical skin peeling treatment sold by
Petitioner is exempt from sales and use taxes under Section 1115(a)(3) of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion. Much of the
information below is contained in Petitioner’s brochures for its products.
Petitioner’s brochure represents that the skin peeling treatment may be used to treat such
complexion problems as acne scarring, large pores, sun damaged skin, fine lines and razor bumps.
The skin peeling treatment is sold by Petitioner in the form of a kit containing certain facial creams.
During the treatment, on consecutive days, the customer applies one of the creams to his or her face
each day, in the order specified by Petitioner. The skin peeling treatment when applied to the face
is said to remove dead skin, leaving new, clear smooth skin. The chemical skin peeling treatment
exfoliates the dead cell layers. Petitioner’s brochure states that the skin peeling treatments "help to
improve the skin’s appearance, normalize extreme skin conditions and help the skin feel tighter and
firmer." The brochure contains other statements that the treatment will improve the user’s
appearance.
There are different strengths of the skin peeling treatment. For severe problems, stronger
treatments are recommended. Depending on the strength used, the treatment must be left on the face
up to 90 minutes.
The ingredients of the skin peeling treatment contain a balance of salicylic acid, sulfur,
phenol and resorcinol. The formula was originated and developed by a New York doctor and
pharmacist. A prescription is not required to purchase the skin peeling treatment. Moreover, there
are no restrictions on who may purchase the treatment. Petitioner sells its skin peeling treatment by
mail order. The majority of sales are to skin care salons. The treatment is also sold to doctors and
to consumers for self application. The skin peeling treatment is marketed by Petitioner as a
cosmetic. The label for the box containing Petitioner’s peeling creams refers to the product as "The
6 Day Cosmetic Facial Treatment Kit."

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TSB-A-99(38)S
Sales Tax
August 4, 1999

Petitioner states that the Food and Drug Administration (the "FDA") has determined that
Petitioner’s skin peeling treatment products are drugs, and has monitored the packaging of such
products. However, since the skin peeling treatment predates the predecessor of the FDA, the
treatment is not under the same testing requirements as products introduced today. Petitioner also
states that the New York State Board of Pharmacy has deemed Petitioner to be a wholesaler of drugs
and/or devices required to be registered under the State Education Law.
Applicable Laws and Regulations
Section 1105(a) of the Tax Law imposes a 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:
*

*

*

(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 . . . .
Section 528.4(c) of the Sales and Use Tax Regulations provides as follows:
Cosmetics. Articles 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.
Section 201(g)(1) of the Federal Food, Drug, and Cosmetic Act (the "Act") provides, in part:
The term "drug" means
(A) articles recognized in the official United States Pharmacopoeia, official
Homoeopathic Pharmacopoeia of the United States, or official National formulary,
or any supplement to any of them; and

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TSB-A-99(38)S
Sales Tax
August 4, 1999

(B) articles intended for use in the diagnosis, cure, mitigation, treatment, or
prevention of disease in man or other animals; and
(C) articles (other than food) intended to affect the structure or any function
of the body of man or other animals; and
(D) articles intended for use as a component of any article specified in clause
(A), (B), or (C). . . .
Section 509 of the Act provides:
Nonapplicability of 21 USCS §§ 351 et seq. to cosmetics
This chapter, as amended by the Drug Amendments of 1962, shall not apply
to any cosmetic unless such cosmetic is also a drug or device or component thereof.
(Emphasis added)
Section 6802(7) of Article 137 of the Education Law, which Article establishes the New
York State Board of Pharmacy, defines "drugs" in substantially the same way as Section 201 of the
Act.
Opinion
In this case, while the skin peeling treatment may contain medicinal ingredients, i.e.,
salicylic acid, sulfur, phenol and resorcinol, it is not a drug or medicine intended for the use,
internally or externally, in the cure, mitigation, treatment or prevention of illnesses or diseases in
human beings. The fact that the FDA and New York State Board of Pharmacy may have determined
that Petitioner’s product is a drug does not mean that the product may not also be considered a
cosmetic for purposes of Section 1115(a)(3) of the Tax Law. The definition of "drug" in both
Section 201 of the Federal Food, Drug, and Cosmetic Act (the "Act") and Section 6802 of the
Education Law includes products that are not intended for use in the cure, mitigation, treatment or
prevention of disease. Unlike the sales tax exemption, these definitions do not exclude cosmetics.
Under Section 509 of the Act, requirements respecting drugs may apply to certain cosmetic
products. Petitioner’s skin peeling treatment is marketed as a cosmetic that improves appearance
by treating such complexion problems as acne scarring, large pores, sun damaged skin, fine lines and
razor bumps. The majority of Petitioner’s sales of this product are to beauty salons. Since this
product is applied by the user to the face for the purpose of promoting attractiveness, it is a cosmetic
for purposes of Section 1115(a)(3). See Section 528.4(c) of the Sales and Use Tax Regulations.

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TSB-A-99(38)S
Sales Tax
August 4, 1999

Under Section 1115(a)(3), cosmetics are subject to sales and use tax notwithstanding the presence
of medicinal ingredients in such cosmetics. Accordingly, the sale by Petitioner of the skin peeling
treatment is subject to State and local sales and use taxes.

DATED: August 4, 1999

NOTE:

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

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