Second medical device excise tax moratorium proposed by House
First moratorium to expire on Dec. 31, 2017
TAX ALERT |
Section 4191 of the Internal Revenue Code imposes a 2.3 percent excise tax on the sale, use or lease of certain taxable medical devices by the manufacturer or importer. A taxable medical device is defined as any device that is intended for humans and required to be listed as a device with the Food and Drug Administration (FDA) under section 510(j) of the Federal Food, Drug and Cosmetic Act (FFDCA). There are exceptions for eyeglasses, hearing aids, contact lenses and items that are of a type generally purchased by the general public at retail for individual use (retail exemption). The applicability of medical device excise tax (MDET) is a facts and circumstances based analysis and contains several traps for the unwary. There are also planning opportunities regarding the constructive sale price rules that enable sales under certain distribution models to be taxed at lower rates.
The MDET first went into effect Jan. 1, 2013 as part of the Patient Protection and Affordable Care Act. On Dec. 18, 2015 the PATH Act imposed a two year moratorium on the MDET, starting Jan. 1, 2016 and ending Dec. 31, 2017. Since the Republicans’ failed attempt to repeal the Affordable Care Act, there had been no further proposed legislation to either repeal or futher delay the MDET.
Finally, on Dec. 12, 2017, Republican members of the House Ways and Means Committee introduced several bills to delay implementation of several taxes that fund the Affordable Care Act. Republican leaders plan to attach these provisions to a spending deal that needs to be accomplished before the government funding runs out Dec. 22. Among the proposed bills are H.R. 4617, which would delay the medical device excise tax for five years. There are no guarantees that these bills will become law, so it would be prudent to plan for the tax on medical devices to potentially resume on Jan. 1.
With a potential reimplementation of the MDET only weeks away, it is critical that systems and processes are reviewed to ensure the appropriate compliance procedures are in place. In addition, taxpayers should consider the following:
- Business Changes – Evaluate the implications of changes in business operations to determine if MDET applies to any new business units or product lines.
- Compliance – Review systems and procedures to ensure IT systems, accounting procedures and budgets are up-to-date to account for the MDET. Below is a table of important dates for your reference:
- MDET Optimization – The MDET is based on the taxable sale price of a device, taxpayers should evaluate their operations to ensure that all available exclusions and exemptions are applied when computing the taxable sale price.
|Sales of medical devices become subject to MDET||Jan. 1, 2018|
|First semi-monthly sales period ends||Jan. 15, 2018|
|First deposit payment due||Jan. 29, 2018|
|End of first reporting period||Mar. 31, 2018|
|First Form 720 due||Apr. 30, 2018|
Excise taxes can be confusing and difficult to understand and comply with IRS published guidance. RSM’s excise tax specialists can assist in researching and applying the existing guidance to ensure that your company is minimizing risk, while taking advantage of tax reduction opportunities.