New York State Can Enact $200 Million Tax on Opioid Industry, Court Rules

New York state won court permission to collect $200 million from the makers and distributors of opioid painkillers to help combat the costs of opioid addiction.

The ruling Monday by a federal appellate court came in litigation brought by pharmaceutical industry groups to block a state law taxing all companies that sold or distributed opioids in the state. The challengers argued such a tax was unconstitutional and an end-run around lawsuits filed by New York against many of the same companies seeking to hold them accountable for the opioid epidemic.

A federal judge in 2018 struck down the law, known as the Opioid Stewardship Act, citing the unconstitutionality of a provision that would have prevented companies from passing on the surcharge to customers in New York.

In its ruling Monday, the Second U.S. Circuit Court of Appeals reversed the decision, finding the payments are a legal tax that New York can collect. The court didn't reach a conclusion on whether the tax could be passed on to customers, because New York didn't appeal that issue and has since created a new tax without that provision that captures sales from 2019 onward.

The original New York law planned to collect $100 million a year for six years starting in 2017, with the amounts owed by each company decided by market share. Monday's decision clears the way for the 2017 and 2018 payments to be imposed.

New York had already sent notices to at least 75 companies billing them for their share of the 2017 tax at the time of the earlier court ruling blocking the tax. Some companies had said they were re-engineering their supply chains to try to lessen their share of the surcharge.

Rich Azzopardi, a senior adviser to Democratic New York Gov. Andrew Cuomo, commended the court Monday and said, " Since the beginning we've been seeking to hold these huge corporations accountable for the opioid crisis that they helped create and fuel."

The opioid crisis cost New York more than $200 million in 2017, according to court filings, more than twice the cost in 2011. The coronavirus pandemic has led to increases in drug-overdose deaths across the country, as increased isolation and stress has made it harder to seek treatment and led to relapses.

The Healthcare Distribution Alliance, which filed one of the suits to block the tax, said it was disappointed with the decision. The Association for Accessible Medicines, a trade group for generic drugmakers that also sued, said it was still reviewing the decision but was glad the court didn't reinstate the pass-through provision, which it said had broader implications for the national drug market. Generic drug manufacturer Mallinckrodt PLC, which filed the third legal challenge, had no comment.

New York was the first state to pass a tax intended to help abate the opioid epidemic. Since then, other states have considered such legislation, and Delaware and Minnesota have passed laws that collect fees from opioid sales.

States and local governments are also trying to secure money from the pharmaceutical industry through litigation, with thousands of lawsuits pending blaming drugmakers and distributors for fueling opioid addiction. State attorneys general are in talks with some of the companies to reach a settlement of more than $26 billion.

Write to Sara Randazzo at sara.randazzo@wsj.com


  (END) Dow Jones Newswires
  09-14-20 1845ET
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