Rulings of the Tax Commissioner

November 20, 2000

Re: Request for Ruling: Retail Sales and Use Tax


Dear ****

This is in reply to your letter of September 29, 2000, in which you seek a ruling on the application of the retail sales and use tax to products sold by * * * (the "Taxpayer").

FACTS

The Taxpayer is a multi-level marketer that sells a variety of nutritional products through a network of distributors throughout the United States and internationally. The Taxpayer provides a description of its products and requests a ruling on the application of the Virginia retail sales and use tax.

RULING

Reduced Sales Tax on Food for Home Consumption

Code of Virginia § 58.1-611.1 sets forth the Food Tax Reduction Program (the "Program"), which reduces the state sales and use tax rate on food purchased for human consumption by 1/2% each year over a four-year period. Effective January 1, 2000, the state sales tax rate was reduced by 1/2%. The rate will be reduced by 1/2% on April 1, 2001, April 1, 2002 and April 1, 2003. The Program does not affect the imposition of the local sales and use tax.

The subsequent rate reductions will take effect only if certain revenue growth occurs. This will be determined by the department by December of each year. Dealers and the general public will be notified in advance whether the next scheduled rate reduction will take effect.

Under the Program, food for human consumption means food for home consumption by humans as defined by the federal food stamp program. The federal definition includes most staple grocery food items and cold prepared foods packaged for home consumption.

The department issued Virginia Tax Bulletin 99-11 (10/1/99), which provides a detailed description of foods qualifying as food for home consumption. The Tax Bulletin provides that specialty dietary foods that are intended to substitute for food, in whole or in part, in an ordinary diet qualify as food for home consumption. The items sold by the Taxpayer are dietary supplements and herbal products in tablet, liquid, and powder form and are not regarded as food or intended as a substitute for food. Therefore, the Taxpayer's products are not considered food for home consumption under the federal definition and do not qualify for the reduced sales tax rate.

Nonprescription Drug Exemption

Effective July 1, 1998, Code of Virginia § 58.1-609.7(15) provides an exemption from the sales and use tax for nonprescription drugs and proprietary medicines. Nonprescription drugs are those substances containing medicines or drugs for which no prescription is required and which are generally sold for internal or topical use in the cure, mitigation, treatment, or prevention of disease in human beings. Proprietary medicines are nonprescription drugs sold to the general public under the brand name or trade name of the manufacturer and do not contain any controlled substance or marijuana.

The department issued Tax Bulletin 98-4 (5/15/98), which addresses the application of the exemption. The Tax Bulletin provides that the exemption does not apply to dietary foods, supplements and substitutes, herbal teas, drinks, pills, or powder supplements.

The Taxpayer also sells a bath additive product that contains desalinated seawater and mineral powder and an Aloe Vera lotion. Tax Bulletin 98-4 provides that the nonprescription drug exemption does not apply to bath crystals, milks, oils, and powder or nonmedicated lotions.

Summary

Based on the above, the sale of the Taxpayer's products are subject to the Virginia retail sales and use tax at the rate of 4.5%. I have enclosed copies of Tax Bulletins 99-11 and 98-4, along with the Food Tax Reduction Program Question and Answer Summary. If you have additional questions, you may contact * * * in the office of Tax Policy at * * *




Danny M. Payne
Tax Commissioner