Sales Tax Secrets: How to Tax Health Food and Supplements
- Sales and Use Tax
- April 9, 2013 | Christina Lengyel
Spring has sprung, right? It may still be freezing outside your office, but the health food and weight loss industries are gearing up for summer sales. As we tilt ever closer to the sun, people will start to seek out the cornucopia of products designed to get everyone looking and feeling their best for beach season.
If your business sells health food or dietary supplements, you need to be aware that these products are often subject to different sales tax rates than other food items. Here are some helpful ways to figure out how the state views what you’re selling.
The most important thing to look for when determining the taxability of a product is the label. Ingredients are important, as is the way they are presented. Does it list “Supplement Facts” or “Nutrition Facts?” If a product has Supplement Facts, it may seem like a no-brainer—tax it as a supplement. But what gets counted as a supplement actually changes all the time. Sweeteners like Stevia, for example, may have started out as supplements, but after they got the seal of approval from the FDA, they made the jump to regular old food. That change meant some labels switched from having Supplement Facts to Nutrition Facts only. So in states where most supplements are taxable and most foods are not, retailers selling products with Stevia may be overcharging customers because they are looking at outdated labels.
Another thing to consider is whether or not the product makes a claim. Is it a particularly healthy granola bar or a particularly granola health bar? Even food items you might not normally think of as supplements can be taxable if they make a claim. Pay attention to whether the product is intended to be part of a healthy diet or it is designed to correct a problem area such as a protein or vitamin deficiency.
It’s also key to remember that food taxability rules vary from state to state. In New York, most supplements are exempt from sales tax. In California, on the other hand, all supplements are taxable including food items with ingredients “for the purpose of providing a high nutritional source.” This means that vitamin enriched foods you’d incorporate into a normal diet like pasta are exempt, but protein or nutrition bars are taxed.
Knowing how your state defines and taxes supplements may not make a dent in your waistline, but it could make a dent in whether or not you have to pay penalties during a sales tax audit.
How does your business handle sales tax changes?