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New York enacted a new excise tax on the first sale of an opioid unit by a registrant in New York state,¹ effective July 1, 2019. The rate is $.0025 on each morphine milligram equivalent (MME) with a wholesale acquisition cost of less than $0.50 per unit, and $.015 on each MME with a wholesale acquisition cost of $0.50 or more per unit. A "first sale" is any transfer of title to an opioid unit for consideration, where actual or constructive possession of such opioid unit is transferred by a registrant holding title to such opioid unit to a purchaser or its designee in New York for the first time. First sales do not include dispensation to a consumer by prescription, or transfer of title to an opioid unit from a manufacturer in New York to a purchaser outside of New York when such opioid unit will be used or consumed outside the state.

The following items are exempt from the excise tax:

• Sales of buprenorphine, methadone and morphine
• Opioids dispensed by prescription to a consumer
• Opioids sold to a purchaser outside of New York state
• Sales of opioids to be used or consumed outside of New York state that are canceled within the same filing period
• Sales of opioids later canceled or transferred out of state
• Opioids sold to New York state licensed programs operated under Article 40 of the N.Y. Public Health Law and Article 32 of the N.Y. Mental Hygiene Law

This new tax replaces the former opioid excise tax, which was found to be unconstitutional by a federal court.² The court ruled that the provision preventing pass-through of the tax by manufacturers to other entities (consumers, pharmacies, etc.) discriminated against out-of-state commerce and violated the Commerce Clause. The new tax permits pass-through of the cost. To comply with the opioid tax, each registrant (i.e., specified manufacturers, wholesalers and outsourcing facilities) must provide a report to the New Yok Department of Health detailing all opioids sold into or within New York state.

The tax will be administered by the New York State Department of Taxation and Finance. The first filing is due on January 21, 2020, with future returns due on a quarterly basis.

More information from the state is available at https://www.tax.ny.gov/bus/oet/oetidx.htm and https://health.ny.gov/professionals/narcotic/opioid_excise_tax.htm

Implications

It remains to be seen whether this current iteration of the opioid tax, if challenged, will withstand constitutional scrutiny. Unlike the former tax, which was designed to raise a flat $100,000,000 per year, this current version would raise an amount that varies based on total sales, like most other excise taxes. In addition, this version of the tax permits pass-through to consumers or other entities. Accordingly, this version may be able to withstand a constitutional challenge.

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ENDNOTES

¹ See N.Y. Laws 2019, Ch. 59 (A2009C/S1509C, enacted April 12, 2019.

² Healthcare Distrib. Alliance v. Zucker, 353 F. Supp. 3d 235, 2018 U.S. Dist. LEXIS 213661, 2018 WL 6651682.