Which of a multi-level marketer's nutritional powders, bars and drink mixes are exempt food or health supplements versus taxable beverages under New York sales tax?

Plain-English summary

Reliv, Inc. sells nutritional, dietary and skin care products through a network of independent distributors -- a multi-level marketing structure like Amway or Avon. It asked the Department to classify nine specific products for sales tax purposes: two weight-management supplements ("Cellebrate" and "Celleboost"), a joint-support powder ("Arthaffect"), a meal-replacement drink mix similar to Slim-Fast ("Ultrim-Plus"), a fiber/antioxidant powder ("FibRestore"), two general nutritional powders with vitamins/minerals/herbs ("Classic" and "NOW"), a sports drink similar to Gatorade ("Innergize"), and fortified fruit-and-nut bars ("Ultrabars").

The Department went through each based on its label claims and comparison to its own published lists of taxable/exempt items (Publications 880 and 820). Six products -- Cellebrate, Celleboost, Ultrim-Plus, Classic, NOW, and Ultrabars -- came out exempt as "food, dietary foods and health supplements" under Tax Law § 1115(a)(1), because their labels' dietary-use claims matched other already-exempt products the Department has listed. Two more -- FibRestore and Arthaffect -- qualified for a different exemption, as products "consumed by humans for the preservation of health" under § 1115(a)(3), matching items on the Department's exempt drugs/medicines/toiletries list. Only Innergize came out taxable: because it's marketed and functions as a sports beverage (like the already-taxable Gatorade) and contains less than 70% natural fruit juice, it falls squarely into the beverage exception that keeps sports drinks and sodas taxable even though most food and juice is exempt.

What this means for you

Dietary supplement and nutrition companies

Whether your product is exempt turns heavily on how it's labeled and marketed -- a dietary-use claim on the label pointing to weight management, joint health, or general nutrition supports the food/dietary-supplement or health-preservation exemptions. But if a product is marketed and functions as a beverage/sports drink rather than a supplement, it falls into the beverage rules instead, where anything short of 70% natural fruit juice (other than plain water, coffee, tea or cocoa) is taxable, no matter how many vitamins or minerals it contains.

Multi-level marketers and direct sellers

This ruling is a useful template for classifying an entire product catalog at once -- the Department worked product-by-product using label claims and its own published taxable/exempt lists (Publications 880 and 820) rather than announcing one blanket rule for "supplements." If you sell a similar range of nutritional products, expect the same product-by-product treatment.

Accountants and tax professionals

Check the specific label claims and marketing positioning for each product against the Department's own taxable/exempt food and drug lists before assuming a "supplement" or "nutritional" product is automatically exempt -- a beverage-format product marketed like a sports drink can lose the exemption even if its ingredients look similar to an exempt powder version.

Common questions

Q: Are all dietary supplements exempt from New York sales tax?
A: Not automatically -- it depends on the specific label claims and whether the product functions more like an exempt dietary food/health-preservation product or a taxable beverage.

Q: Why is the sports drink taxable when the other powders aren't?
A: Because it's sold in beverage form and marketed like Gatorade (already listed as taxable), and it contains less than 70% natural fruit juice -- the threshold New York requires for a fruit beverage to be exempt.

Q: Can another supplement company rely on this ruling?
A: No. This advisory opinion binds the Department only as to Reliv, Inc. and the nine specific products and label claims described; a similar-looking product from another company could be classified differently.

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(1) (food, dietary foods and health supplements exemption)
• Tax Law § 1115(a)(3) (products consumed for preservation of health exemption)
• 20 NYCRR § 528.2(b), (c) (beverages; dietary foods and health supplements)
• 20 NYCRR § 528.4(a)(1) (products for preservation of health)
• Department Publication 880, Taxable and Exempt Foods and Beverages Sold at Retail Food Markets and Similar Establishments
• Department Publication 820, Taxable & Exempt Drugs, Medicines and Toiletries

Prior rulings referenced:

• Matter of Rich Plan of Utica, Inc., State Tax Commission, February 10, 1981, TSB-H-81(20)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(16)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S961107A

On November 7, 1996, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Reliv, Inc., P.O. Box 405, Chesterfield, MO
63006-0405.
The issue raised by Petitioner, Reliv, Inc., is whether certain of its
dietary and nutritional products enumerated herein are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner sells nutritional, dietary, and skin care products through a
multi-level network of independent distributors. Petitioner is considered an
"MLM" or multi-level marketer, like Amway and Avon, who ships its products to
various New York distributors for sale.
Petitioner’s specific products in question are further described as
follows:
(1) "Cellebrate," a patented dietary food supplement that inhibits the
absorption of fat.
(2) "Celleboost," a dietary food supplement in pill form that inhibits fat
absorption.
(3) "Arthaffect," a powdered nutritional supplement with Arthred, which
has been clinically reported to nutritionally support healthy joint function.
(4) "Ultrim-Plus," a powdered meal replacement product that is similar to
"Slim-Fast" and is available in three flavors.
(5)

"FibRestore," a patented fiber-rich antioxidant supplement in powder

(6)
carotene.

"Classic," a patented powdered nutritional supplement with beta

(7)

"NOW," a powdered nutritional supplement with vitamins, minerals and

form.

herbs.
(8) "Innergize," a powdered sports drink similar to "Gatorade" which is
available in three flavors.
(9) "Ultrabars," fruit and nut bars that are fortified with vitamins,
minerals and herbs, and are available in three flavors.

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Applicable Law and Regulations
Section 1115(a) of the Tax Law provides, in part, that:
(a) 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:
(1)
Food, food products, beverages, dietary foods and health
supplements, sold for human consumption but not including (i) candy
and confectionery, (ii) fruit drinks which contain less than seventy
percent of natural fruit juice, (iii) soft drinks, sodas and
beverages such as are ordinarily dispensed at soda fountains or in
connection therewith (other than coffee, tea and cocoa) and (iv)
beer, wine or other alcoholic beverages, all of which shall be
subject to the retail sales and compensating use taxes, whether or
not the item is sold in liquid form . . . .
*

*

*

(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 or medical equipment (including component parts thereof) and
supplies, other than such drugs and medicines, purchased at retail
for use in performing medical and similar services for compensation.
Section 528.2 of the Sales and Use Tax Regulations provides, in part:
(b) Beverages, other than water.
(1)
Beverages sold for human
consumption are exempt from sales and compensating use tax, except
for:
(i)
fruit drinks which contain less than 70 percent of natural
fruit juices;
(ii) soft drinks, sodas and beverages, such as are ordinarily
dispensed at soda fountains (other than coffee, tea or cocoa);
(iii)

beer, wine and other alcoholic beverages.

(2)
A beverage
otherwise.

is

a

drink,

whether

sold

in

liquid

form

or

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(3) Fruit juices are exempt beverages. Fruit drinks, ades, nectars
and cocktails which contain less than 70 percent natural fruit
juices, are taxable.
*

*

*

(c) Dietary foods and health supplements. (1) A dietary food is
a food for a special dietary use for humans and which bears on the
label a statement of the dietary properties upon which its use is
based in whole or in part.
(2)
Products which are intended to substitute for the ordinary
diet, or supplement the ordinary diet, or substitute for natural
foods are exempt, when sold for human consumption. Among these are
liquid diet products, artificial sweeteners and vitamins.
Opinion
Petitioner submitted labels from each of its nine products in question.
On the labels of product numbers 1 and 2, "Cellebrate" and "Celleboost" are
classified as dietary supplements which are used to aid the customer in losing
excess weight by controlling hunger and decreasing body fat. Product numbers 6,
7 and 9, "Classic," "NOW" and "Ultrabars," are nutritional supplements whose
principal ingredients are proteins, vitamins, minerals and herbs. Product number
4, "Ultrim-Plus," is a liquid diet product similar to "Slimfast." New York State
Department of Taxation and Finance Publication 880, Taxable and Exempt Foods and
Beverages Sold at Retail Food Markets and Similar Establishments, contains a
partial list of foods and beverages that are taxable or exempt. All of the
aforementioned products are similar to other products listed in Publication 880
which are not taxed for sales tax purposes. Therefore, these six products are
considered food items in accordance with section 1115(a)(1) of the Tax Law and
section 528.2(c)(2) of the Sales and Use Tax Regulations and are exempt from
sales tax.
Product numbers 5 and 3, "FibRestore" and "Arthaffect," are said to
nutritionally supply the body in its mission to maintain health and joint
function, respectively. They are similar to other exempt products listed in New
York State Department of Taxation and Finance Publication 820, Taxable & Exempt
Drugs, Medicines and Toiletries.
As such, these two items are considered
products consumed for the preservation of health in accordance with section
1115(a)(3) of the Tax Law and section 528.4(a)(1) of the Sales and Use Tax
Regulations and are exempt from sales tax.
Lastly we address Petitioner’s product number 8, "Innergize." Petitioner
portrays this product as a sports drink similar to "Gatorade." This constitutes
the sale of a beverage pursuant to section 528.2(b) of the Sales and Use Tax
Regulations. "Gatorade" is listed in Publication 880, supra, as a taxable item.
Petitioner’s product contains less than 70 percent of natural fruit juice, an

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amount required for sales tax exemption within the meaning and intent of section
1115(a)(1) of the Tax Law and under section 528.2(b)(3) of the Regulations (see
Matter of Rich Plan of Utica, Inc., State Tax Commission, February 10, 1981,
TSB-H-81(20)S). Accordingly, receipts from the sales of this product are subject
to tax.

DATED:

March 27, 1997

NOTE:

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

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