Sales Tax Slice: Vitamins and Dietary Supplements Promote Healthy Growth of Tax Revenue

Many people start the new year trying to get healthier. As part of this resolution, some people turn to dietary supplements and vitamins to up their intake of certain nutrients. Adding these items are a quick way to achieve this goal, but, I’m sure you’re wondering, are these products subject to sales and use tax? In short, the answer varies from state to state.

The Streamlined Sales and Use Tax Agreement has a rather exacting definition for dietary supplements. Specifically, the Agreement defines a dietary supplement as any product, other than “tobacco,” intended to supplement the diet that contains a vitamin, mineral, herb, or other botanical, amino acid, dietary substance for use by humans to supplement the diet by increasing the total dietary intake, or a concentrate, metabolite, constituent, extract, or combination of any ingredient described in the previous items. Additionally, to qualify as dietary supplements, such products must be intended for ingestion in tablet, capsule, powder, soft-gel, gel-cap, or liquid form, or, if not intended for ingestion in such forms, are not represented as conventional food and are not represented for use as the sole item of a meal or diet and must be labeled as a dietary supplement.

Most member states of the Streamlined Sales and Use Tax Agreement exclude dietary supplements from the definition of food and tax them as they do other types of tangible personal property. Some states, like Kansas, tax dietary supplements unless they are sold with a prescription.

Illinois, a non-member state, takes a different approach and taxes vitamins, food supplements, and meal replacement drink mixes that make medicinal claims at the reduced tax rate that is applicable to drugs. Other vitamins and supplements that do not make medicinal claims are considered foods and are taxed at the reduced tax rate that is applicable to food. Luckily for taxpayers, the reduced tax rate for food and for drugs is the same—1 percent.

Regardless of how dietary supplements are taxed, here’s hoping everyone has a healthy start to the new year.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How should the states tax dietary supplements?

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