Is a progesterone topical cream marketed as 'not intended to diagnose, treat, cure, or prevent disease' exempt from New York sales tax as a drug or medicine?

Plain-English summary

Tax Matrix Technologies asked whether two topical creams containing the hormone progesterone — Paraben-Free Pro-Gest and Original Pro-Gest — qualify for New York's sales tax exemption for drugs, medicines, and health-preservation products. The manufacturer's own website touted that "supplementing the circulating levels of progesterone would curb a whole range of distressing experiences women had simply come to accept as part of being a woman," but also carried an explicit FDA-style disclaimer: "These products are not intended to diagnose, treat, cure or prevent disease." The same manufacturer also sold other wellness, sexual-vitality, and skin-care products.

New York's exemption for drugs and medicines requires that a product actually be intended for use in curing, treating, or preventing illness or disease, or be consumed for the preservation of health — merely containing a medicinal ingredient like progesterone isn't enough. Cosmetics and toilet articles stay taxable "notwithstanding the presence of medicinal ingredients." Because neither Tax Matrix nor the manufacturer claimed the creams treat or prevent any disease — and the manufacturer's own marketing expressly disclaimed that intended use — the Department concluded the products don't meet the drug/medicine or health-preservation-product exemption. As a result, sales of both creams are subject to New York sales tax as taxable cosmetics, regardless of the progesterone ingredient.

What this means for you

Sellers of topical wellness and hormone-supplement products

If your product's own marketing disclaims a disease-treatment purpose (a common move to avoid FDA drug regulation), that same disclaimer will likely defeat the state sales tax drug/medicine exemption too — you can't have it both ways. Containing an active or medicinal ingredient isn't enough on its own; the exemption turns on the product's represented intended use.

Cosmetic and personal-care manufacturers

Products marketed for general wellness, "beautifying," or lifestyle benefits rather than disease treatment are treated as taxable cosmetics or toilet articles even when they contain hormones or other active ingredients — align your marketing claims carefully if you intend to claim the exemption, understanding that overstating medical claims raises separate FDA risk.

Accountants and tax professionals

This ruling is a useful, low-complexity template for any over-the-counter wellness/supplement product where the FDA-disclaimer language and the sales-tax exemption question point in opposite marketing directions — check the product's own labeling and website claims first, since that's what actually decided this case.

Common questions

Q: Is a cream containing a hormone or medicinal ingredient automatically tax-exempt?
A: No. The product must actually be intended and represented for use in treating, curing, or preventing disease, or for preserving health — a medicinal ingredient alone doesn't qualify it.

Q: Does an FDA-style disclaimer affect the sales tax analysis?
A: Yes — here, the manufacturer's own disclaimer that the product isn't intended to diagnose, treat, cure, or prevent disease was central to the Department's conclusion that it isn't an exempt drug or medicine.

Q: Can other sellers of similar wellness products rely on this Advisory Opinion?
A: No. It binds the Department only for the petitioner and facts described; another seller's product claims and marketing would need to be evaluated on their own facts.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) (retail sale of tangible personal property)
• Tax Law § 1115(a)(3) (drugs, medicines, and health-preservation products exemption)
• 20 NYCRR 528.4 (drugs/medicines exemption; cosmetics carve-out)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a07_7s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-07(7)S
Sales Tax
March 16, 2007

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S060510A

On May 10, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Tax Matrix Technologies, LLC, 1011 Mumma Road, Suite 101,
Wormleysburg, Pennsylvania 17043.
The issue raised by Petitioner, Tax Matrix Technologies, LLC, is whether Paraben-Free
Pro-Gest cream and Original Pro-Gest cream are exempt from sales and use tax under section
1115(a)(3) of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Paraben-Free Pro-Gest cream and Original Pro-Gest cream are applied topically to the
skin and contain progesterone as an ingredient. The manufacturer's Web site states that
"supplementing the circulating levels of progesterone would curb a whole range of distressing
experiences women had simply come to accept as part of being a woman."
The Web site’s disclaimer states "This information is intended for educational purposes
only. These statements have not been evaluated by the Food and Drug Administration. These
products are not intended to diagnose, treat, cure or prevent disease."
Other products sold by the manufacturer include natural wellness products designed for
women over 40 as well as sexual vitality and skin care products.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax . . . there is hereby imposed and there shall be paid a tax .
. . upon:
(a) The 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 under
section eleven hundred ten:

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TSB-A-07(7)S
Sales Tax
March 16, 2007

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(3) Drugs and medicines intended for use, internally or externally, in the cure,
mitigation, treatment or prevention of illnesses or diseases in human beings . . . 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 of the Sales and Use Tax Regulations provides, in part:
(a) Exemption. (1) Drugs and medicines intended for the 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 are exempt.
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(3) Cosmetics or toilet articles notwithstanding the presence of medicinal
ingredients therein are taxable. Medical equipment (including component parts thereof)
and supplies, other than drugs and medicines, purchased at retail for use in performing
medical and similar services for compensation are not included in the exemption.
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(b) Drugs and medicines. (1) Drugs and medicines mean:
(i) articles, whether or not a prescription is required for purchase, which are
recognized as drugs or medicines in the United States Pharmacopeia, Homeopathic
Pharmacopeia of the United States, or National Formulary, and intended for use in the
diagnosis, cure, mitigation, treatment or prevention of disease in humans;
(ii) articles (other than food) intended to affect the structure or any function of the
human body.
(2) The base or vehicle used (oil, ointment, talc, etc.) and the medium used for
delivery (disposable wipe, syringe, saturated pad, etc.) of a drug or medicine will not
affect its exempt status.
(3) Products consumed by humans for the preservation of health include other
substances used internally or externally, which are not ordinarily considered drugs or
medicines.
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TSB-A-07(7)S
Sales Tax
March 16, 2007

(c) 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.
Example: Cold creams, suntan lotions and makeup are taxable cosmetics.
Opinion
Paraben-Free Pro-Gest cream and Original Pro-Gest cream both contain progesterone.
Neither Petitioner nor the manufacturer’s Web site makes any representation that these products
are drugs or medicines intended for use, internally or externally, in the cure, mitigation,
treatment, or prevention of illnesses or diseases in human beings or are consumed by humans for
the preservation of health. Indeed, the manufacturer’s Web site carries a disclaimer stating
“These products are not intended to diagnose, treat, cure or prevent disease.”
Accordingly, based on the facts presented in the Petition, notwithstanding the presence of
medicinal ingredients, these products are not considered drugs or medicines or products
consumed for the preservation of health as contemplated by section 1115(a)(3) of the Tax Law.
Therefore, receipts from the sale of these products are subject to sales or use tax under section
1105(a) of the Tax Law.

DATED: March 16, 2007

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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