Are nutritional supplement drinks and dietary products sold to hospitals and nursing homes for their patients exempt from Texas sales tax?

Plain-English summary

A supplier of medical nutrition products asked the Comptroller whether a list of specific nutritional supplement drinks and powders it sells mainly to hospitals and nursing homes — brand-name items like Citrotein, Ensure Bars, Ensure High Protein, Ensure Light, EqualYTE, Forta Drink, ReSource Fruit Beverage, ReSource Yogurt Flavored Beverage, and Vivonex Flavored Packets — were taxable. The Comptroller found that all of the listed products qualify for exemption.

Most of the products are classified as dietary supplements, while two (the ReSource and Forta Drink beverages) are separately classified as "soft drinks." Both classifications reach the same exempt result here because Texas law exempts food products, meals, soft drinks, and candy served to a patient or inmate of a state-licensed hospital or other care institution, or to a permanent resident of a retirement facility that mostly houses people 60 or older. On top of that institutional-food exemption, the letter notes that as of April 1, 2000, Texas separately exempts over-the-counter drugs and medicines, including dietary supplements — an independent basis covering these same products regardless of who they're served to.

What this means for you

Medical supply and nutrition product vendors

If you sell nutritional supplement products to hospitals, nursing homes, or other state-licensed care institutions for patient use, those sales are exempt under the institutional food/meals/soft-drinks exemption — regardless of whether the specific product is classified as a "dietary supplement" or a "soft drink." The same products likely also qualify independently under the OTC drugs/dietary supplements exemption effective April 1, 2000.

Hospitals, nursing homes, and retirement facilities

Purchases of nutritional supplement products for patient or resident care generally shouldn't carry Texas sales tax, whether bought under the institutional-food exemption (patients/inmates of licensed care facilities, or residents of retirement facilities housing mostly people 60+) or the OTC drug/dietary supplement exemption.

Accountants and tax professionals

Note the letter finds two independent, overlapping exemption paths reach the same products: the institutional food/meals/soft-drinks exemption (tied to who the product is served to) and the general OTC drugs/dietary supplements exemption (tied to what the product is, effective April 1, 2000). Either one is sufficient on its own for these facts.

Common questions

Q: Are nutritional shakes and supplement drinks taxable when sold to a hospital?
A: Not when served to a patient of a state-licensed hospital or other care institution — Texas exempts food products, meals, soft drinks, and candy served in that setting.

Q: Does it matter if the product is technically a "soft drink" rather than a dietary supplement?
A: Not for this exemption. Two of the products in this ruling were separately classified as soft drinks, but they qualified anyway because the institutional exemption covers soft drinks served to hospital/nursing-home patients just like it covers meals and food products.

Q: Does the same exemption apply to retirement facility residents?
A: Yes, if the facility provides permanent housing and residence to individuals a majority of whom are 60 years or older.

Q: Can I rely on this letter for my own products or customers?
A: No. This opinion is based on the facts presented; additional or different facts may change the outcome.

Citations and references

No Texas Tax Code section or administrative rule is cited by number in the original letter. The letter references two overlapping exemptions: the institutional food/meals/soft-drinks-served-to-patients-or-residents exemption, and the general over-the-counter drugs/dietary supplements exemption effective April 1, 2000.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200005300L

Original ruling text

May 12, 2000

Dear **:

Thank you for your letter regarding the taxability of medical supplies and
equipment that you sell mainly to hospitals and nursing homes.

One of your customers is questioning the taxability of one or more of the items
you sell. The customer is a non-exempt hospital. You ask about the following
products with suggested use:

CITROTEIN - fruit-flavored protein (egg white solids) 25%, carbohydrate (sugar,
maltodextrin) 73%, fat (mono and diglycerides, soybean oil) 2% powder
composition and multiple vitamins. Provides liquid nutrition for patients
requiring oral supplementation appropriate for fortification of the clear
liquid diet.

ENSURE BARS - complete, balance nutrition for supplemental use between or with
meals. Two bars provide more protein and vitamins that an 8-fl oz can of
ENSURE. Rich in calcium and vitamin C.

ENSURE HIGH PROTEIN - a concentrated, high-protein liquid food for patients who
require additional calories, protein, vitamins and minerals, such as patients
recovering from general surgery or hip fractures and patients at risk of
pressure ulcers. For supplemental nutrition and oral feeding.

ENSURE LIGHT - complete balanced nutrition for supplemental use between or with
meals. Ensure light is useful for normal-weight or overweight patients who
need extra nutrition in a lower calorie, lower fat supplement than Ensure, or
for healthy adults who don't eat right and need extra nutrition. For
supplemental nutrition and oral feeding.

EqualYTE - is an enteral rehydration solution designed to prevent dehydration
and correct volume depletion by replacing fluids and electrolytes lost during
diarrhea and vomiting or whenever GI fluids are lost For oral or tube feeding,
not for use as a sole source of nutrition. Features - 1:1 molar ratio of
glucose and sodium facilitates fluid absorption at the cellular level; provides
a cost-effective alternative to IV hydration; sodium level equal to half-normal
saline, a concentration frequently used for IV hydration. Contains
fructooligosaccharides (FOS), indigestible carbohydrates that ferment in the
colon to produce short-chain fatty acids (SCFAs); increase electrolyte and
water absorption--2 significant factors in diarrhea management.

Forta Drink - a high-protein, vitamin-fortified beverage. It can add extra
protein and vitamin C to a meal or be served between meals. Suitable for use
in clear liquid diets. For supplemental nutrition and oral feeding. Features

• provides 5 g protein per 5 fl. oz.; 100% of RDI for vitamin C in 5 fl. oz.; 2
  delicious flavors--orange and fruit punch; easy to prepare, just add water.

ReSource Fruit Beverage - a delicious fruit-flavored, fat free nutritional
supplement for patients who cannot consume a sufficient intake of food to meet
their nutritional requirements. Technical features: Caloric Distritutions
-Protein: 20% (whey protein concentrate); Carbohydrate: 80% (sugar, hydrolyzed
cornstarch), Fat: ) 0% Caloric Density: 0.76 cal/mL; Nonprotein Calorie:
Nitrogen Ratio: 105:1; Water Content: 876 mL/1000mL; Lactose free, gluten free
low residue. Suggested indications: Oncology, geriatrics, cerebrovascular
accident (CVA), oral surgery, bowel preparation, anorexia, protein-calorie
malnutrition, pressure ulcers, pre- and postoperative, fat malnutrition,
HIV/Aids.

ReSource Yogart Flavored Beverage - provides a unique and delicious peach
taste, and is nutritionally fortified with 22 vitamins and minerals. Developed
to address patients' taste preferences and help promote compliance. Suggested
indications: Anorexia, Geriaterics, Protein-calorie malnutrition, pressure
ulcers, Onclology, Oral surgery, pre- and postoperative, cerebrovascular
accident (CVA), HIV/Aids. Technical features: Caloric Distribution - Protein:
14% (whey protein concentrate, sodium and calcium caseinates, dehydrated low
fat yogurt); Carbohydrate: 71% (sugar, maltodextrin); Fat: 15% (corn oil)
Caloric Density: - 1.06 cal/mL; Nonporotein Calorie: Nitrogen Ratio: 157:1;
Water Content: 200 ml/237 mL; Osmolality: 800 mOsm/gk water; Lactose free,
gluten free, low residue. Composition: ready to use.

Vivonex Favlored Packets - may be added to any Vivonex Powder for oral
consumption. The pacets help provide flavor variety and minimize flavor
fatigue. Techincal Features: Caloric Distribution - Carbohydrate: 100%
(dextrose as carrier for flavor); Lactose free, Osmolality: Not significant.
One packet added to one packet of Vivonex at standard dilution changes
osmolality 5 mOsm/kg water.

All of the products that you ask about qualify for exemption. Most of the
products you ask about are classified as dietary supplements. The ReSource and
Forta Drink beverages are classified as soft drinks.

The law exempts food products, meals, soft drinks, and candy served to a
patient or inmate of a hospital or other institution licensed by the state for
the care of humans; or served to a permanent resident of a retirement facility
which provides permanent housing and residence to individuals, a majority of
whom are 60 years or older.

In addition, as of April 1, 2000, over the counter drugs and medicines,
including dietary supplements are exempt. For more information you may visit
our website at:

http://www.window.state.tx.us/taxinfo/taxpubs/tx94_155.html

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4675. The direct line is
(512) 463-4675. You also may write to Tax Policy Division, Comptroller of
Public Accounts. You may also e-mail our tax help section at:
[email protected]>

Sincerely,

Tom Soto
Tax Policy Division