Tax & Accounting Blog

Nutritional products and the food exemption in Colorado

Blog, Indirect Tax, ONESOURCE June 27, 2016

The Colorado Department of Revenue recently released a letter ruling (PLR-16-013) in which it addressed whether certain products sold by a multilevel marketing company were subject to Colorado sales tax. The products in question included a liquid intended to improve intestinal health (including powdered and concentrated versions of the liquid), other powdered drink mixes, a protein bar, and a packet of roasted soy nuts. All products addressed had a Nutrition Facts label.

In Colorado, sales of tangible personal property are subject to sales tax. Col. Rev. Stat. § 39-26-104(1). However, sales of food are specifically exempted from sales tax. Col. Rev. Stat. § 39-26-707(e). Colorado has chosen to adopt the definition of food as used by the federal food stamp program or SNAP (Supplemental Nutrition Assistance Program). Col. Rev. Stat. § 39-26-102(4.5)(a). According to SNAP rules, items that carry a “Nutrition Facts” label (as determined by the Federal Drug Administration) qualify as food. However, dietary supplements labeled by the FDA with a “Supplement Facts” label are not considered food and are not exempt from sales tax. Col. Code. Regs. 39-26-102.4.5. Col. FYI Tax Publication No. Sales 4 (Jan. 1, 2012).

Had the products in question been labeled by the FDA with a Supplement Facts label, they would not have been considered food and would have been subject to tax. However, because these products contained a Nutrition Facts label, they are considered exempt food in Colorado. Consequently, there is no obligation on the seller to collect and remit Colorado sales and use taxes administered by the Colorado Department of Revenue (although sales tax may be due to Colorado home rule cities and counties who self-collect).