The New York State Department of Taxation and Finance (DTF) recently issued Advisory Opinion TSB-A-24(10)S in response to a petition looking to clarify whether receipts from the energy-enhancing gels and chews it distributes are subject to New York state and local sales and use taxes.
Upon review, the DTF concluded that the products sold by the Petitioner—when packaged, labeled, and sold as dietary foods and health supplements—are exempt from New York state and local sales and use taxes.
Tax Exemption for Energy Enhancement Gels and Chews in Athletic Activities
The Petitioner sells various products used in athletic and recreational activities, specifically energy-enhancement gels and chews. These products are packaged and labeled as portable energy-enhancing items intended for consumption before, during, or after intense physical activity.
The petitioner's advisory opinion request included the packaging and labels of the energy gels and chews. Each product's packaging lists ingredients and features a “Nutrition Facts” or a “Supplement Facts” panel. These panels state the recommended daily percentage values of the ingredients contained in the product.
The DTF’s Sales Tax Analysis
All retail sales of tangible personal property are generally subject to sales tax. One exemption is found in Tax Law §1115(a)(1). This section exempts "[f]ood, food products, beverages, dietary foods, and health supplements, sold for human consumption."
To fit this exemption, the critical inquiry is whether the Petitioner's energy enhancement products qualify as "dietary foods" or "health supplements" under the statute. Per 20 NYCRR 528.2(c)(1), a dietary food is defined as a food for special dietary use that bears on its label a statement of the dietary properties upon which its use is based.
20 NYCRR 528.2(c)(2) clarifies that products intended to substitute for or supplement the ordinary diet or natural foods are exempt when sold for human consumption. This includes, among other things, liquid diet products and vitamins.
In the Petitioner’s case, the energy products are specifically packaged and labeled to highlight their dietary properties. The labels emphasize ingredients like energy-dense carbohydrates and electrolytes, indicating that the products increase the user's energy levels.
They feature either a "Nutrition Facts" or a "Supplement Facts" panel stating the recommended daily percentage values of the ingredients. The DTF concluded that the Petitioner's energy gels and chews are considered dietary foods or health supplements and are tax-exempt under Tax Law § 1115(a)(1).
Implications for Businesses Selling Dietary Supplements in New York
The determination provides insight for businesses selling energy-enhancement gels and chews. Businesses should carefully review their product labeling and marketing materials to ensure they meet the criteria outlined in the tax regulations. Labels should prominently display the products' dietary properties, include a "Nutrition Facts" or "Supplement Facts" panel, and state the recommended daily percentage values of the ingredients.
Consulting with a professional familiar with New York tax law is advisable for companies who need clarification on their products' tax status or are seeking to optimize their compliance strategies. If your business needs assistance interpreting how this advisory opinion applies to your operations, contact a New York tax professional for personalized advice.