Colorado Sales Tax on that Herbal Essense

Herbs are all the rage in Colorado right now, and I’m sick of it. Fortunately, today’s herbal discussion has nothing to do with the recreational marijuana industry that’s bringing in annoying tourists and odd investment schemes. Today, we’ll focus on another long-time favorite: Chinese medicine.

Colorado Department of Revenue–which has the awesome Game of Thrones sounding acronym of CODOR–just released a letter they originally sent out in June about whether an acupuncturist has to collect sales tax on the sales of their custom  herbal formulas. To not bury the lead too much, CODOR said yes, please give us that money.

CODOR: It's like a combination of a Condor and this guy

CODOR: It’s like a combination of a Condor and this guy

I figured that this would be a “well, duh,” type of conclusion, but after reading through CODOR’s letter, I can see why the taxpayer struggled.

Here’s the idea: drugs are taxed unless they fall under one of the following excemptions, which I’m going to lazily copy and paste from the Department’s letter:

(a) All sales of prescription drugs dispensed in accordance with a prescription by a licensed provider or furnished by a licensed provider as part of professional services provided to a patient or client;” (emphasis added)

(k) All sales of nonprescription drugs or materials when furnished by a licensed provider as part of professional services provided to a patient;” (emphasis added)

If you didn’t get it while reading over the two pieces of tax code (or if your eyes glazed over like a Krispy Kreme donut), the Department of Revenue really wanted to focus on that whole LICENSED PROVIDER section. The emphasis is theirs, not mine.

If we go through CODOR’s reasoning, the taxpayer’s underlying question was whether herbal remedies are considered prescription drugs, nonprescription drugs, or just a random group of materials mixed together by the acupuncturist. It is called Chinese medicine (that emphasis is from me), so if a person trained in it makes a mixture specifically for you, couldn’t that be considered a prescription drug?

Or even if it’s not considered a prescription drug, acupuncturists are are licensed in Colorado, and they’re handing out the medicinal mixture as part of a professional service (e.g. acupuncture), so couldn’t the herbal formula be considered a non-taxable nonprescription drug?

All very interesting questions for people like me who sit around and ponder the mysteries of the tax code.

Based on CODOR’s letter, I think they hoped to avoid touching that underlying question of whether Chinese medicine is considered a drug like it was some zombie-infested spider writing threatening notes in her web.

To avoid that question, CODOR took a shortcut and said that acupuncturists–while licensed–are not licensed to prescribe drugs or practice medicine. Therefore, whatever you want to call that mixture they hand out, it still doesn’t qualify for a sales tax exemptions qualify. Taxes must be collected.

Problem solved. A round of custom herbal formulas all around.