Sunsetting the Sales Tax on Sunscreen

As of June 18, 2012, sunscreen is once again exempt from Texas sales and use tax thanks to a new Food and Drug Administration (FDA) rule (PDF, 225KB).

Over-the-counter (OTC) drugs and medicines, including sunscreen, were exempted from sales tax on April 1, 2000.

Legislation that became effective Sept. 1, 2007, however amended the definition of OTC drugs in Texas Tax Code Section 151.313 (a)(3) to provide that an over-the-counter item is exempt from sales tax only if the OTC drug or medicine is required by the FDA to be labeled with a drug facts panel. As a result of that statutory change, sunscreen became taxable because it was not required to be labeled with a drug facts panel.

At the time the amendment to Tax Code Section 151.313 occurred, the FDA had proposed, but then delayed, a drug panel labeling requirement for sunscreen. Due to the FDA proposal, many sunscreen manufacturers began voluntarily labeling their products with a drug facts panel. But, because OTC sunscreen drug products were not required by the FDA to be labeled with a drug facts panel, sunscreen products were subject to sales tax based on Tax Code Section 151.313 (a)(3) even if the product displayed a drug facts label.

The FDA has now published a final rule to establish labeling and testing requirements for OTC sunscreen drug products, and the rule requires sunscreen drug products to bear the drug facts panel. The FDA rule became effective June 18, 2012.

Because sunscreen is now required by the FDA to be labeled with a drug facts panel, it also now qualifies for the exemption set out in Tax Code Section 151.313 (a)(3). Therefore, as of June 18, 2012, sunscreen is once again exempt from Texas sales and use tax.

Originally published in the June Edition of the Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html

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