The medical device excise tax (“the tax”) was included in the Affordable Care Act signed into law in 2010. The tax equals 2.3% of the price paid for certain medical devices sold by any manufacturer, producer, or importer and applies to sales after December 31, 2012. On June 7, 2012 the House passed legislation that would repeal the tax but the Senate, as of this writing, has not announced plans to consider the measure.
The tax is generally imposed on medical devices regulated by the FDA as listed under Section 510(j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360). However, if a device is not listed with the FDA and the FDA deems the device should have been listed, then the device is deemed listed as of the date the manufacturer is notified by the FDA in writing. Sales of devices intended for use on animals, eyeglasses, hearing aids and any other medical device determined to be of a type that is generally purchased by the public at retail for individual use, are not subject to the tax.
On December 6, 2012 the IRS issued final regulations to provide guidance on the tax. These final regulations offered further guidance on what is a “taxable medical device” including “dual use” devices, biologic devices, veterinary devices, humanitarian use devices, and software upgrades. The regulations provided a “retail exemption safe harbor,” which includes devices in the FDA’s online in vitro diagnostics Home Use Lab Tests (Over-the-Counter Tests) database, devices the FDA describes as “over the counter” and devices that qualify as durable medical equipment, prosthetics, orthotics or supplies for which payment is available on a purchase basis under the Medicare Part B payment rules. The IRS also provided guidance on transitional relief for installment sales, leases, and long-term contracts and software sold together with services.
The medical devise excise tax is reported on Form 720, Quarterly Federal Excise Tax Return and payment of the tax is due with the return. If the manufacturer’s quarterly net tax liability exceeds $2,500, the manufacturer must submit semimonthly deposits.
In preparation for compliance with the tax, businesses should determine their qualification as a manufacturer and importer for purposes of the tax, whether they sell “taxable medical devices,” if any devices fall under the “retail exemption,” what the taxable sales price is for calculating the tax, and review the applicable form and payment procedures.
Please contact us if you have any questions regarding the medical device excise tax and your business.