Ruling 2016-3, Sales and Use Taxes, Food and Beverages, Nonprescription Drugs and Medicines

FACTS:

The Company sells several herbal aloe products through a network of independent distributors in forms that are: ready-to-drink; liquid concentrate; or a powder to be added to water or other beverages (the “Products”).  The Products’ labels state that they soothe the stomach and support nutrient absorption and intestinal health. The Products each bear the “Nutrition Facts” box on their labels, which state that each Product has fifteen calories or less, zero fat, carbohydrates and protein, and no more than one percent of each day’s daily values of sodium and potassium.

ISSUE:

Are sales of the Products exempt from sales and use taxes as sales of food products for human consumption under Conn. Gen. Stat. § 12-412(13)?

RULING:

The sales of the Products are exempt from sales and use taxes as sales of food products for human consumption under Conn. Gen. Stat. § 12-412(13).

DISCUSSION:

Retail sales of tangible personal property in the State of Connecticut are subject to sales and use tax, unless specifically exempt. Conn. Gen. Stat. §§ 12-407 and 12-408. Sales of “food products for human consumption” are exempt from tax under Conn. Gen. Stat. § 12-412(13), which defines food products as including:

[Cereals] and cereal products, milk and milk products, oleomargarine, meat and meat products, fish and fish products, eggs and egg products, vegetables and vegetable products, fruit and fruit products, spices and salt, sugar and sugar products other than candy and confectionery; coffee and coffee substitutes, tea, cocoa and cocoa products other than candy and confectionery.

The definition of “food products for human consumption” is further elaborated upon by Conn. Agencies Regs. § 12-426-29 to mean all products normally consumed by human beings for nutritive value or taste satisfaction. The definition of “food products for human consumption” excludes, among other items, “tonics or preparations in liquid, powdered, granular, tablet and capsule form” that are “sold as dietary supplements or adjuncts.”

The issue presented is whether the Products, which are marketed as having certain health benefits, are thus excluded from the definition of “food products for human consumption.” Sales of dietary supplements are exempt under a different statutory provision. Conn. Gen. Stat. § 12-412(120).  For purposes of Conn. Gen. Stat. § 12-412(120), dietary supplements are defined as products, other than cigarettes or tobacco products, intended to supplement the diet of a human or animal that meet the following three requirements:

1. Contain one or more of the following dietary ingredients:

a.  A vitamin;

b.  A mineral; 

c.  An herb or other botanical; 

d. An amino acid;

e.  A dietary substance for use to supplement the diet by increasing the total dietary intake; or

f.  A concentrate, metabolite, constituent, extract, or combination of any ingredient described in above.

2.      Are intended for ingestion in tablet, capsule, powder, softgel, gelcap, or liquid form, or if not intended for ingestion in such a form, are not marketed as conventional food and are not marketed for use as a sole item of a meal or of the diet; and

3.      Are required to be labeled as a dietary supplement, identifiable by the “Supplement Facts” box found on the label and as required pursuant to Title 21 of the Code of Federal Regulations § 101.36.

Special Notice 2015(1), Sales and Use Tax Exemption for Nonprescription Drugs and Medicines.

Although the labels of the Products include certain health claims, the Products do not qualify as “dietary supplements” because they are marketed as a beverage and are not labeled with the “Supplement Facts” box.  Instead the Products all bear the “Nutrition Facts” box. The United States Food and Drug Administration (“FDA”) is responsible for assuring that foods sold in the United States are safe, wholesome and properly labeled, pursuant to federal laws that require most foods to bear a “Nutrition Facts” box.[1]

The Products are made from aloe that has been converted into a ready-to-drink beverage, or a liquid or powdered concentrate for use as a beverage when added to water or other liquid. The Company markets the Products for use as a beverage, which is consistent with the labels using a “Nutrition Facts” box. These facts indicate that the Products are properly considered food products for human consumption and not dietary supplements.

In addition, vegetable products are included in the definition of food products for human consumption that qualify for exemption under Conn. Gen. Stat. § 12-412(13).  Aloe, when the plant is raised for edible products, can be considered a vegetable.[2]

For these reasons, the Products are considered food products for human consumption, and are not considered dietary supplements for purposes of the exclusion from food products set forth in Conn. Gen. Stat. § 12-412(13).  Therefore, sales of the Products are exempt from sales and use taxes as sales of food products for human consumption.

LEGAL DIVISION September 15, 2016

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