Opioid tax legal defeat puts $600 million of New York State funds at risk

A federal judge struck down New York State's newly enacted opioid tax, creating a potential budgetary challenge as Gov. Andrew Cuomo gears up to unveil his next fiscal plan.

U.S. District Court Judge Katherine Polk Failla granted an injunction in a Dec. 19 ruling blocking the tax that was enacted as part of the current state budget and later crafted as part of Opioid Stewardship Act that took effect July 1. The OSA law approved by state lawmakers established a $600 million stewardship fund by imposing an annual $100 million surcharge on opioid manufacturers and distributors through 2024.

Darren McGee/Darren McGee- Office of Governor Andrew M. Cuomo

“The OSA is not a tax, but is rather a regulatory penalty on opioid manufacturers and distributors,” Judge Failla wrote in her 52-page decision. “As currently structured, it improperly burdens interstate commerce.”

Failla called New York’s goals under the OSA “commendable”, but said the state’s pursuit of improving public health cannot violate the Commerce Clause of the U.S. Constitution. She added that a “perhaps unforeseen consequence” of the tax would be reducing availability of opioid medications for those most in need of them as a result of higher prices.

The lawsuit was filed by the Healthcare Distribution Alliance with the Association for Accessible Medicines and SpecGx LLC later joining the suit. The New York Office of the Attorney General and Department of Health, which were named in the lawsuit, did not immediately respond for comment on if the state planned to appeal the ruling.

Judge Failla’s decision could impact other states weighing similar opioid tax measures. Kentucky lawmakers proposed a 25-cents-per-dose opioid tax in March, but the measure failed to muster enough support to pass the state Senate.

This month, Cuomo is slated to unveil his budget proposal for the 2020 fiscal year that commences April 1. The Democratic governor is beginning his third term with his party in control of both chambers of the state legislature after picking off eight-Republican-held senate seats in November.

The Empire State has general obligation ratings of Aa1 by Moody's Investors Service, and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.