Was an over-the-counter drug or medicine exempt from Texas sales tax in 2000 just because it had an NDC (National Drug Code) number, even if the number didn't appear on the label?

Plain-English summary

A Comptroller Tax Policy staffer answered a taxpayer email asking about the new Texas sales tax exemption for over-the-counter (OTC) drugs and medicines that took effect April 1, 2000. The confirmed rule at the time: if an OTC drug or medicine had been issued an NDC (National Drug Code) number, the sale was exempt from Texas sales tax — and the number didn't even need to appear on the product label for the exemption to apply.

This is now superseded. STAR has attached an ALERT to this letter: effective September 1, 2007, under H.B. 3319, OTC drugs and medicines instead need a "Drug Facts" panel on the label to qualify for the exemption. So the timeline is: from April 1, 2000 through August 31, 2007, the NDC-number test in this letter controlled; from September 1, 2007 forward, the drug-fact-panel test controls instead. A retailer relying on this letter today should apply the current drug-fact-panel rule, not the NDC-number test described in the letter's original 2000 text.

What this means for you

Retailers selling OTC drugs and medicines

Don't rely on the "has an NDC number" test from this 2000 letter to decide whether an OTC item is tax-exempt today. Since September 1, 2007, Texas instead looks at whether the product's label carries a "Drug Facts" panel (the FDA-mandated OTC labeling format).

Accountants and tax professionals

This is a good example of a STAR letter whose original holding is accurate for its own era (2000-2007) but has been legislatively superseded — H.B. 3319 changed the statutory test in 2007. Flag the ALERT date carefully so a client doesn't apply outdated guidance.

Common questions

Q: Did an NDC number on the label matter for the sales tax exemption in 2000?
A: The number itself mattered — the item was exempt if it had been issued an NDC number — but it didn't need to be printed on the label to qualify.

Q: Is the NDC-number test still the rule today?
A: No. Effective September 1, 2007 (H.B. 3319), Texas instead requires a "Drug Facts" panel on the label to qualify for the OTC exemption.

Q: Can I rely on this letter for my own business today?
A: No, for two reasons: a STAR letter can only be relied on by the taxpayer it was issued to, and this particular letter's own test has since been superseded by statute.

Citations and references

Statutes:

• Tex. Tax Code § 151.313 (health care supplies exemption, covering OTC drugs and medicines)
• H.B. 3319 (2007) (added the "Drug Facts" panel labeling requirement, effective 9/1/2007, per the STAR currency ALERT)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200003127L

Original ruling text

ALERT: Over the Counter (OTC) sales are now required to have a drug fact panel to qualify for exemption effective 09/01/2007-HB 3319.

Date: March 21, 2000

From: Philip Knisely

To:

Subject: Over the Counter drugs - New exemption effective 4-1-2000

Dear **:

Thanks for using tax help email to inquire about over-the-counter drugs and
Texas sales tax exemptions effective April 1, 2000.

You are correct. If an over-the-counter drug or medicine has been issued an
NDC (National Drug Code) number, it is exempt from Texas sales tax. The number
does not have to appear on the product label to be exempt.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

Please let me know if you have additional questions.

Sincerely,

Philip Knisely