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Taxing Opioids to Address Prescription Drug Abuse

Tax Law Alert Larry P. Cote, David Brunori

Federal and state policy makers struggle to come up with solutions to the ongoing opioid crisis. As with many areas of public policy, political leaders are turning to the tax laws as a possible way to curtail opioid abuse. In the past two years, there have been many proposals to impose special or excise taxes on the sale of opioids. To date none have passed. But we believe that without the implementation of other policies to address the issue, a number of states will impose taxes in the coming year.

In March, West Virginia Senator Joe Manchin introduced a bill (S 523) that would impose a federal excise on opioid sales. The law would impose a one cent per milligram tax on the sale of active opioids by a manufacturer, producer, or importer. Prescription drugs used exclusively for the treatment of opioid addiction as part of a medically assisted treatment effort would be exempt.  The revenue would be earmarked for state run addiction treatment programs. A similar bill was introduced in the House (HR 2038).

More recently, lawmakers in Delaware were the latest to propose the tax. On June 22, the House Majority leader co-sponsored a bill (HB 250) that would impose a ten percent tax on the sellers of opioids. It would apply to manufacturers, producers, importers, and distributors of opioids in the state. It would exempt opioids used to treat opioid addiction. Opioids sold outside of Delaware would also be exempt from tax.  The tax would be imposed at the wholesale level on the first sale into the state.

There have been proposals to tax opioids in seven other states in the past year. The Delaware proposal is a gross receipts tax.  An almost identical tax was proposed in Pennsylvania (SB 1213) and Connecticut (SB 5) although the rate in Connecticut was lower (6.35 percent). Some states have proposed a unit tax or fee on prescription opioids. For example, Washington state lawmakers proposed a .05 cents per dose (HB 1505) while proposals in California (AB 1512), Kentucky (HB 467), Massachusetts (HB 2633), and Minnesota (HF 1440) would set the rate at one cent per one milligram dose. In every state, the revenue would be earmarked for opioid addiction treatment or law enforcement.

There are a myriad of policy and legal issues surrounding the taxation of opioids. The taxes will likely make health care more expensive. And there are Federal laws prohibiting taxation of Medicare Part D prescriptions. There are also many variations of the state tax proposals. From a policy perspective, will the taxing of opioids really impact prescription drug abuse or are lawmakers missing the mark on how to make significant gains in eradicating drug abuse?

For questions, contact Larry Cote at [email protected]/(202) 372-9524 or David Brunori at [email protected]/(202) 780-2634.