News and Insights

New York Tax on the Opioid Industry Struck Down in Federal Court

Tax Development Jan 14, 2019

The United States District Court for the Southern District of New York declared the recently enacted Opioid Stewardship Act (“the Act”) unconstitutional.1 The Act, which became effective in July 2018, embodied the state’s attempt to combat the opioid crisis by enacting an annual assessment against pharmaceutical manufacturers and distributors licensed to distribute opioids in New York. The assessment is spread out over a six-year period and is calculated based on the prior year’s sales. 

Healthcare Distribution Alliance filed a complaint seeking a declaratory judgment that the Act was unconstitutional and a permanent injunction prohibiting its implementation. Two other plaintiffs also challenged the “pass-through prohibition.” The Act forbids opioid manufacturers and distributors from passing on new costs imposed under the Act to downstream purchasers of their products. The court held that the method “by which the Act extracts payments from opioid manufacturers and distributors to redress those concerns violates the Dormant Commerce Clause of the United States Constitution.”

The court further held that the payment is a regulatory penalty on manufacturers and distributors, which improperly burdens interstate commerce. The court held that the Act would have the effect of discriminating between purchasers of opioids in New York and those outside that state, as any additional charge could be passed through to manufacturers and distributers that are not present in New York. The court granted the preliminary judgment and held that the Act is unconstitutional. As the first payments due on the assessment are scheduled for January 2019, the timing of the decision leaves the state time to file an appeal before payments are due. As of this writing, no appeal has been filed. 

1 Healthcare Distribution Alliance v. Zucker, ___F. Supp. 3d ___, 2018 WL 6651682 (S.D.N.Y. December 19, 2018).


Mark Nachbar

Mary Bernard