Under recently updated health care regulations, manufacturers and importers of medical devices are now responsible for a 2.3% excise tax.
Included in the Patient Protection and Affordable Care Act (PPACA) is an excise tax on the sale of certain medical devices under Section 4191 of the Internal Revenue Code. Under the new tax regulations, medical devices will be charged a 2.3% excise tax. The tax applies to manufacturers and importers on sales of “taxable medical devices” after December 31, 2012.
A “taxable medical device” includes any device, implant or accessory that is: (i) in the National Formulary; (ii) intended for preventing, diagnosing or treating a disease or other condition; and intended for humans.
However, the law contains a number of exemptions from the excise tax. These include a “retail exemption” that excludes all eyeglasses, contact lenses, hearing aids, and any other medical device that is “generally purchased by the general public at retail for individual use.” Additionally, the regulations also set out a “retail exemption safe harbor” which includes: (i) certain in vitro diagnostics (IVD) “Home Use Lab Tests”; (ii) certain devices that the FDA describes as “OTC” or “over the counter”; and (iii) a number of devices that qualify as durable medical equipment, prosthetics, orthotics, or other supplies for which payment is available under Medicare Part B.
The first quarterly return for the medical device excise tax is due April 30, 2013, and will include January, February, and March 2013. However, in response to public reaction to the new tax, penalties under Section 6302 of the new regulations (which the IRS may impose for a failure to make timely deposits) have been waived for the first three (3) calendar quarters of 2013.
The IRS’s new excise tax regulations demonstrate the importance of medical device manufacturers and importers: (i) understanding the application of FDA definitions and standards; and (ii) conducting regular analysis of products that are manufactured and/or imported in the medical device market.
The full text of the new regulations were published in the December 7, 2012 Federal Register (77 Fed. Reg. 72924) and are available online.
N.B. On February 7, 2013, a bill that would repeal the medical device excise tax was introduced before the U.S. Senate.
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