Is a nutritional drink taxable in Texas, or exempt like a food product or meal replacement?

Plain-English summary

Although this document is filed under a franchise-tax code in the STAR system, its text is entirely a sales and use tax ruling; it is classified here by its content. A retailer asked whether a product ("Preferred Nutrition") was taxable. The Comptroller drew a line between two categories:

• Meal replacements are exempt food products. Products marketed as a replacement or substitute for a meal an individual would normally eat — the letter names Slim Fast and Ultra Slim Fast — are treated as food products, and their sale is exempt from sales tax.
• Therapeutic nutritional substances are taxable. Substances that have substantial nutritional value but are marketed, labeled, and promoted as therapeutic do not qualify as food products and are taxable. This includes over-the-counter tonics, vitamins, and diet aids (diet pills, diet candies, and diet bars that are not total meal replacements).

Because the product was marketed as a nutritional drink, not a meal replacement, the Comptroller concluded it was a taxable nutritional supplement. The opinion rested on the facts presented and could change if the facts changed.

Important currency note: This 1996 conclusion is historical. STAR marks the document partially superseded on 02/12/2004, and per its own notice a statutory change made over-the-counter drugs and medicines exempt as of 04/01/2000 (see accession 200005313L for the later policy). Do not rely on the "taxable" holding for a current transaction — confirm the present treatment of dietary supplements and over-the-counter items.

What this means for you

Retailers and grocers

The old test turned on marketing: a product sold as a meal substitute was an exempt food, while one sold as a therapeutic supplement, tonic, vitamin, or diet aid was taxable. That distinction has since been overtaken by statutory changes exempting over-the-counter drugs and medicines — so a product that was taxable under this 1996 letter may be exempt today.

Accountants and tax professionals

Treat this letter as a snapshot of pre-2000 policy. Before applying it, check the current Tax Code treatment of food products, dietary/nutritional supplements, and over-the-counter drugs and medicines, which the Comptroller's own supersession notice says changed effective April 1, 2000.

Common questions

Q: Were meal-replacement shakes like Slim Fast taxable?
A: No. As products marketed to substitute for a meal, they were treated as exempt food products.

Q: Why was the nutritional drink taxable?
A: Because it was marketed as a nutritional supplement rather than a meal replacement, so it did not qualify as an exempt food product under the 1996 policy.

Q: Is that still the rule?
A: No — the letter is partially superseded, and over-the-counter drugs and medicines became exempt as of April 1, 2000. Confirm current law before relying on it.

Citations and references

The letter applied the sales-tax exemption for food products and the distinction between meal replacements and therapeutic supplements without citing a specific Tax Code section. Its supersession notice points to a statutory change effective 04/01/2000 exempting over-the-counter drugs and medicines and to accession 200005313L for the later policy. See the verbatim text below.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9601L1395G08

Original ruling text

STAR SUPERSEDED INFORMATION
Accession No.(s) -
Supersede type - Partial
Document superseded on - February 12, 2004
Issue that caused the document to be superseded – Nutritional substances
that have substantial nutritional value but are marketed, labeled, and
promoted to the public as being therapeutic (over the counter drugs and
medicines are exempt as of 4/1/2000).
Reason for superseding the document - Statutory change - See 200005313L
for current policy.

January 10, 1996

Dear ** :

I have received your inquiry regarding the taxability of Preferred Nutrition.

Products such as Slim Fast and Ultra Slim Fast (marketed as a
replacement/substitute for a meal that an individual would normally eat) are
treated as food products. Sales of these meal replacements are exempt from
tax.

Substances that have substantial nutritional value but are marketed, labeled,
and promoted to the public as being therapeutic are taxable because they don't
qualify as food products. This category includes over-the-counter tonics,
vitamins, and diet aids such as diet pills, diet candies, and diet bars that
aren't total meal replacements.

Based on the information you sent, it appears that this product is marketed as
a nutritional drink and not as a meal replacement. As such, Preferred
Nutrition appears to be a nutritional supplement, not a meal replacement, and
is taxable.

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

If you have any questions, please don't hesitate to call one of our tax
specialists toll free at 1-800-252-5555. The direct line is 512/463-4600. You
may also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Policy Division