State opioid taxes: What you need to know
INSIGHT ARTICLE |
Three states – Delaware, Minnesota and New York – specifically impose taxes and fees on opioid manufacturers and distributors. Other states are considering imposing such taxes. The following summary discusses the general compliance requirements of opioid laws now in effect. Companies that manufacture, distribute, or sell opioids should be familiar with these taxes and fees.
Delaware imposes an impact fee on opioid manufacturers. Delaware defines manufacturer very broadly to include anyone “engaged in manufacturing, preparing, propagating, compounding, processing, packaging, repackaging, or labeling of a prescription opioid drug.” The law imposes a $0.01 per “morphine milligram equivalent” (MME) for a prescription opioid dispensed and reported in the state Prescription Monitoring Program (PMP) or $0.0025 per MME for a prescription opioid that is a generic substitution. The manufacturer must pay the fee if it dispenses more than 100,000 MMEs of prescription opioids in Delaware in a single quarter. The Delaware Secretary of State calculates the fee for each qualifying manufacturer based on the PMP reports and issues a quarterly invoice. See Del. Code Ann. Tit. 16, section 4802B.
Under the PMP, Delaware pharmacies and practitioners, and out of state pharmacies that deliver into Delaware, must electronically report data pertaining to the sale of all controlled substances. The report must include the name and national drug code (NDC) for each prescription.
The Delaware impact fee became effective June 12, 2019. The law establishing the fee expires on Jan. 1, 2025.
Minnesota imposes several different license fees on opioid manufacturers and wholesalers. As of July 1, 2019, Minnesota imposes an opioid product registration fee. The registration fee is $250,000 a year for any manufacturer that “sells, delivers, or distributes 2 million or more units of an opiate into the state. For purposes of the law, one unit equals “one tablet, capsule, patch, syringe, milliliter, or gram.” This fee is paid by manufacturers whose opioid products are sold in Minnesota.
As of March 1, 2020, all manufacturers and wholesalers must report to the state Board of Pharmacy all sales, deliveries, and distributions of opiates into Minnesota. The report is due each March 1 and must include data for the prior calendar year. All pharmacies must report any intercompany deliveries or distributions of opioids into the state to the extent those deliveries and distributions are not reported by a wholesaler. By April 1 of each year, the Board of Pharmacy will notify all manufacturers who meet the threshold that the fee is due.
In addition to the product registration fee, Minnesota imposes an annual license fee on all manufacturers of opiate containing products of $55,000. The state also imposes an annual license fee on all wholesalers of opiate products of $5,000.
New York imposes an excise tax levied on the first opioid sales into the state. The tax is imposed on “opioid registrants” which includes anyone who holds and transfers title to an opioid unit and is required to register with the state as a manufacturer or distributor of a controlled substance. The law essentially applies to anyone who manufactures or distributes controlled substances in New York.
The tax is imposed on the first sale into New York. Thus, any transfer of title of an opioid unit for consideration by a registrant in New York for the first time is subject to tax. First time sales do not include transfers by prescription to the ultimate user of an opioid unit. Sales of opioid units from a New York manufacturer to a purchaser outside the state are excluded from the tax.
The tax is $0.0025 on each MME with a wholesale acquisition cost of less than $0.50 per unit or $0.0150 on each MME with a wholesale acquisition cost of $0.050 or more per unit. All persons subject to the tax must file an excise tax return with the New York Commissioner of Taxation and Finance. The return must include the total MMEs subject to tax and the total tax due. The first returns are due to be filed on Jan. 21, 2020. Thereafter, returns are due quarterly on the 20th of the month following the end of the calendar quarter. The New York law allows registrants to claim refunds for tax paid on cancelled purchase or for taxes paid on sales of MMEs that were not subject to tax. In addition, New York requires registrants to file registrants to file an annual report with the New York Department of Health detailing customer names, sales dates, and gross receipts for all controlled substance transactions.
Compliance and recordkeeping
All companies manufacturing or selling opioid products should be aware of the relevant tax and fee laws in Delaware, Minnesota, and New York discussed above. Taxpayers should also be aware that more states are likely to propose and enact similar laws. Compliance with opioid fees and taxes should be a high priority. Each of the states has substantial penalties associated with failures to file or to remit fees and taxes.
Therefore, companies should know what types of opioids (usually legislatively determined) are subject to tax. They should also know the threshold sales amounts that will be subject to tax. Further, knowing the types of transactions that trigger taxation and fees is critical as well as tracking new and amended opioid tax legislation and regulation.
As importantly, all companies should keep detailed records of the type, the amount (in both dollars and by unit), and destination/origin of all opioid sales and purchases. Finally, companies subject to state taxes and fees should be cognizant of all filing and reporting requirements.