Does a Georgia multi-level marketer owe sales tax on hemp-extract dietary supplements and topical balms, and on the fees distributors pay to enroll and renew their status?

Plain-English summary

A multi-level marketer sells nutritional, dietary, and skin-care products, including new items made with hemp extract (from industrial hemp under the 2018 Farm Bill, under 0.3% THC): topical balms, food-grade oils taken under the tongue with a dropper, and a reformulated powder supplement. Its distributors also pay a fee to enroll and an annual fee to renew their "active" status, which entitles them to wholesale discounts. The company asked whether the products and the distributor fees are subject to Georgia sales tax.

On the products, the Department ruled they are taxable. Georgia's tax is broadly imposed on all retail sales of tangible personal property, and exemptions are strictly construed. The oils and powder are "dietary supplements" (they carry the federal "Supplement Facts" box), but Georgia provides no sales-tax exemption for dietary supplements, so that label does not help. The topical balms are simply taxable tangible personal property. All of these sales are subject to state and local sales and use tax.

On the enrollment and renewal fees, the Department ruled they are not taxable. The fee buys the right to purchase, promote, and sell the products (and the chance at bigger discounts). Distributors get no tangible property for the fee, the fee is not applied toward future purchases, and they are not required to buy anything. Because the fee is not for tangible personal property or any enumerated taxable service, it falls outside the sales tax.

What this means for you

Supplement and MLM sellers

Do not assume "dietary supplement" means tax-exempt in Georgia -- it does not. Hemp/CBD supplements, oils, powders, and topical products are taxable tangible personal property here, and being labeled with a Supplement Facts box does not change that. (Georgia treats food differently from supplements; this ruling is about supplements, not exempt grocery food.)

Direct-sales and membership businesses

A pure membership or "right to sell" fee can be non-taxable when the member receives no tangible goods and no taxable service in return, the fee is not credited toward purchases, and no minimum purchase is required. If you bundle tangible items (a starter kit, product samples) into that fee, the analysis can change.

Accountants and tax professionals

The products turn on the strict-construction rule and the absence of any dietary-supplement exemption in the Georgia Code. The fee turns on there being no transfer of tangible personal property and no enumerated taxable service. Watch the facts that carried the fee result -- no tangible item provided, fee not applied to purchases, no purchase minimum.

Common questions

Q: Are dietary supplements taxable in Georgia?
A: Yes. Georgia has no sales-tax exemption for dietary supplements, so their sale is taxable tangible personal property -- even when the product carries a federal "Supplement Facts" label.

Q: Are hemp or CBD products treated differently?
A: Not for this purpose. The hemp-extract oils, powder, and topical balms were all taxable tangible personal property; the hemp content did not create an exemption.

Q: Are the fees distributors pay taxable?
A: No. The enrollment and renewal fees buy the right to sell and possible discounts, with no tangible property or enumerated service provided in exchange, so they are not subject to sales tax.

Q: Can I rely on this ruling?
A: Not automatically. A Georgia letter ruling binds the Department only for the taxpayer and facts it was issued to, and no other taxpayer may rely on it. Your product labeling or fee structure may differ.

Citations and references

Statutes and rules:

• O.C.G.A. §§ 48-8-1, 48-8-30(a) (imposition of sales/use tax on tangible personal property and certain services)
• O.C.G.A. § 48-8-2(31) (definition of "retail sale")
• O.C.G.A. definition of "dietary supplement" (product required to carry a "Supplement Facts" box); Georgia provides no sales-tax exemption for dietary supplements
• 21 C.F.R. § 101.36 (federal Supplement Facts labeling requirement)

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2019-08

Original ruling text

Georgia Letter Ruling: LR SUT-2019-08
Topic: Retail Sale; Dietary Supplements
Date Issued: October 18, 2019
This letter is in response to your three requests for guidance on the application of Georgia sales and use tax to sales of
certain products and fees charged by Taxpayer.
Facts Presented by Taxpayer
Taxpayer sells nutritional, dietary, and skin care products through a multi-level network of independent distributors.
Taxpayer is considered an “MLM” or multi-level marketer. Generally, Taxpayer charges sales tax based upon the
address to which the company ships products and based upon the suggested retail price. 1
Products
Taxpayer is rolling out five new products containing hemp extracts. Hemp extract is growing in popularity and use as
a dietary supplement. Hemp extract is being sourced from industrial hemp, as defined by the Agricultural Improvement
Act of December 2018, containing less than 0.3% THC. Two of the products are balms containing differing
concentrations of hemp extract. The balms are intended for topical application. Three of the products are food-grade
oils. One oil is made with full spectrum hemp extract, and two oils are made with hemp extract isolate products. The
oils are administered via a tincture dropper under the tongue. The oils have “Supplement Facts” labels.
Additionally, Taxpayer recently reformulated a dietary supplement. The product is now sold as a powder rather than
in liquid form. The new version is not ready for immediate consumption: the user must first mix the powder with
water or some other liquid. The product has a “Supplement Facts” label.
Enrollment and renewal fees
Distributors pay a fee when they sign up to be a distributor, and they are required to renew their status annually, at the
same rate. The annual renewal fee is paid by each distributor in order to remain in “active” status. All “active”
distributors maintain a wholesale discount on products purchased. Distributors earn a percentage discount on the
products purchased based on the volume of products purchased. Distributors are not required to purchase a minimum
amount of Taxpayer’s products, and the distributor fee is not applied toward future purchases. Active distributors also
receive distributor support services and web access. There is no tangible item provided in exchange for the enrollment
and renewal fees. 2
Issues

1. Are charges for the products described above subject to sales and use tax in Georgia?
2. Are charges for enrollment and renewal of distributor status subject to sales and use tax in Georgia?
   Analysis
   Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
   use, or consumption of tangible personal property and on certain services. 3 “Retail sale” means a sale of tangible
   personal property or taxable services to any person other than for resale. 4
   Products

Certain orders that have been certified for personal usage by distributors are taxed based upon wholesale pricing.
Previously, Taxpayer would mail a welcome kit and a periodic magazine to distributors.
3
O.C.G.A. §§ 48-8-1 and 48-8-30(a).
4
O.C.G.A. § 48-8-2(31).
1
2

Georgia Letter Ruling: LR SUT-2019-08
Topic: Retail Sale; Dietary Supplements
Date Issued: October 18, 2019
Page 2 of 2
Sales and use tax is broadly imposed on all retail sales of tangible personal property. 5 Exemptions from taxation are
strictly construed, and an exemption will not be granted unless the relevant provision clearly and distinctly shows that
such was the plain and unambiguous intention of the General Assembly. 6
Georgia law defines “dietary supplement” as any product, other than tobacco, intended to supplement the diet that, in
addition to other criteria, is required to be labeled as a dietary supplement, identifiable by the “Supplements Facts”
box found on the label as required pursuant to 21 C.F.R. Section 101.36. 7 Georgia law does not provide a sales and
use tax exemption for the sale or use of dietary supplements. 8
Taxpayer sells three oils and a powder that, presuming proper labelling, fall within the definition of dietary
supplements. However, no sales and use tax exemption is extended to such products based on this categorization.
Taxpayer’s sales of topical hemp balms, hemp oils, and 24K powder are sales of tangible personal property. Based on
the facts provided, such sales are not exempt from sales and use tax.
Enrollment and renewal fees
Taxpayer’s distributors pay a fee for the right to purchase, promote, and sell Taxpayer’s products and for the possibility
of receiving additional discount benefits. Distributors do not receive tangible personal property in exchange for paying
a distributor fee, and the distributor fee is not applied toward future purchases. Moreover, distributors are not required
to purchase products. Since the payment of the enrollment and renewal fee does not include the sale of tangible
personal property or any service enumerated by law, such fees are not subject to sales and use tax. 9
Rulings

1. Taxpayer’s sales of products that are properly labeled with a “Supplement Facts” box and Taxpayer’s sales of
   topical balms are sales of tangible personal property. The sales of such products do not fall within an exemption and,
   thus, are subject to state and local sales and use tax.
2. A charge for the right to sell products is not the sale of tangible personal property or services as contemplated in
   Georgia statutes or regulations; therefore, Taxpayer’s charges to enroll as a distributor and to renew distributor status
   are not subject to sales and use tax in Georgia.
   The opinions expressed in this ruling are based upon the information contained in your request and limited to the
   specific transactions, facts, circumstances and taxpayer in question. The facts herein are those presented by the
   taxpayer and the Department accepts them as true for this ruling. If the facts presented herein change, are not true,
   are different, or material facts have been omitted, the conclusions reached in this ruling may change. In addition,
   subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this
   advice is based may subject similar future transactions to a different tax treatment than that expressed in this ruling.

O.C.G.A. §§ 48-8-1 and 48-8-30(a).
Ga. Comp. R. & Regs. r. 560-12-1-.18.
7
O.C.G.A. § 48-8-2(11.1). Dietary supplements must also (a) contain one or more of the following dietary ingredients:
a vitamin; a mineral; an herb or other botanical; an amino acid; a dietary substance for use by humans to supplement
the diet by increasing the total dietary intake; or a concentrate, metabolite, constituent, extract, or combination of any
ingredient described above; and (b) be intended for ingestion in tablet, capsule, powder, softgel, gelcap, or liquid form,
or if not intended for ingestion in such a form, is not represented as conventional food and is not represented for use
as a sole item of a meal or of the diet.
8
See LR SUT-2014-18. The defined term “food and food ingredients” explicitly excludes dietary supplements, so any
exemption for certain sales of food and food ingredients would not apply to dietary supplements. O.C.G.A. §§ 48-82(16) and 48-8-3(57).
9
See LR SUT 2016-14.
5
6