The IRS and Treasury have proposed new rules for applying excise taxes to drugmakers that refuse to negotiate drug prices with Medicare under the 2022 tax and climate law, specifically targeting manufacturers and importers responsible for the initial sale of the drugs.
In the proposal announced Tuesday, both the IRS and U.S. Department of the Treasury explained that while the Inflation Reduction Act (IRA) clearly imposes taxes on “manufacturers, producers, or importers” of certain brand-name prescription drugs, the law does not clearly define these terms. The agencies have proposed that the tax apply to the entity that makes the first sale of the drug, or in the case of an importer, to the entity that first sells the drug once it has entered the U.S.
This approach aligns with nearly a century of case law regarding excise taxes, where the tax is generally imposed on the initial seller in the supply chain. The IRS and Treasury specified that the tax would typically apply to those who are considered drugmakers — those who physically or chemically create the drugs — rather than wholesalers, repackagers, or retail pharmacies that may sell the drugs later in the process.
