States Increasingly Eyeing Sales, Excise Taxes on Opioids

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By Ryan Prete

Practitioners are skeptical that the growing trend among states to levy excise and sales taxes on opioids will curb the nationwide overdosing epidemic.

Six states—Kentucky, Minnesota, New Jersey, New York, Tennessee, and West Virginia—are mulling 12 measures proposing taxes on the distribution, production, and sales of the medication, according to the Healthcare Distribution Alliance, an organization representing primary pharmaceutical distributors.

Nine of the 12 bills were introduced or have advanced in the legislature this year. California, Mississippi, Oklahoma, and Virginia also are considering legislation.

The nation as a whole is witnessing a significant financial deficit from opioid overdoses. According to the National Institute on Drug Abuse, the amount paid for treatment of substance use disorders is only a small portion of the costs the disorders impose on society. The total cost of prescription opioid use disorders and overdoses in the United States was $78 billion in 2013. Of that, only 3.6 percent, or about $2.8 billion, was for treatment.

Richard Auxier, research associate at the Urban-Brookings Tax Policy Center at the Urban Institute, told Bloomberg Tax that he expects more states to migrate toward taxing those making or using the drug.

“We still need to understand if taxes directly placed on opioids is the best way to pay for treatment, but we can’t just be asking tax professionals, we need to hear from doctors and users,” Auxier said. “Dollars for treatment are obviously needed, but funding for every intervention program doesn’t necessarily need to be tied to the user. Opioid recovery programs can be installed today and instead tied to a general fund.”

Proposal on Hill

While recent proposals to tax opioids have surfaced at the state level, U.S. Rep. Michelle Lujan Grisham (D-N.M.) introduced a like-minded federal bill in July 2017.

The Heroin and Opioid Abuse Prevention and Treatment Act of 2017 ( H.R. 3254) in part proposes a 1-cent-per-milligram tax on active opioid production, but the bill hasn’t moved since its introduction. The proposed tax would generate about $2 billion in annual revenue to expand access to substance abuse treatment and prevention programs, as well as fund new research on combating the opioid epidemic, according to a Grisham staff member.

“Our law enforcement agencies and health care providers are already overburdened and stretched to their limits. People are dying because they do not have the help they need. My bill will help fund the programs necessary to fight this epidemic,” Grisham told Bloomberg Tax in an email.

For now, states are leading the movement to tax opioids. But Liz Malm, director of strategic government relations and economist with the consulting firm MultiState Associates Inc., sees the campaign as a continuing but ill-fated trend.

“We do expect state legislatures to continue to explore myriad responses to the opioid epidemic, and funding for programs will certainly be part of that discussion,” Malm told Bloomberg Tax. “Many opioid tax proposals have been introduced, but thus far they have not been well thought out; generally, they would be difficult if not impossible to comply with or administer.”

Different ‘Sin Tax’

Auxier said that states need to have goals for their proposed taxes. He explained that, following the theory of a soda and sugar tariff, a tax on the active opioid ingredient would reflect a plan to decrease consumption—while a tax on the volume of the medication would reflect a plan focused on raising revenue.

Still, Auxier said, taxing opioids is far more complicated than other “sin taxes” because there are multiple parties the burden could fall on, such as patients or insurance companies.

Cheaper, Dangerous Alternatives

Auxier said that while there’s universal agreement that opioid abuse is a problem, a surcharge placed on distributors could easily be floated to consumers, potentially placing an economic burden on users of the drug.

“These proposals are very complex. While distributors and producers are the parties theoretically taxed, the additional cost could be passed onto consumers through price increases,” Auixer said. “Taxes placed directly on opioids could be harmful, potentially limiting the medication for people who need it.”

Auxier said that higher prices could push opioid users to seek out cheaper, more dangerous options, such as fentanyl, a powerful and widespread synthetic opioid. Fentanyl was a large contributor to the over 42,000 fatal opioid-related overdoses in 2016.

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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