2.3% Medical Device Excise Tax, Effective January 1, 2013

What is it?
Section 4191 of the Internal Revenue Code imposes a 2.3% excise tax on the sale of certain medical devices by the manufacturer/importer of the device.  On December 5, 2012, the Internal Revenue Service (IRS) issued final regulations and interim guidance regarding the determination of sale price and other issues related to the tax.

This tax applies to sales of taxable medical devices made after December 31, 2012.

To whom does this excise tax apply?
This tax applies to manufacturers and importers as defined:

Manufacturer:  The manufacturer is the person who produces taxable medical device from scrap, salvage, or junk material, or from new or raw material, by processing, manipulating or changing the form of a device or by combining or assembling two or more devices.

Importer:  The importer of a taxable medical device is the entity that brings the device into the United States from a source outside the United States, or withdraws the device from a customs-bonded warehouse for sale or use in the United States.

What devices are subject to this new tax?
A taxable medical device is one that is listed as a device with the Food and Drug Administration under section 510(j) of the Federal Food, Drug, and Cosmetic Act and 21CFR part 807, unless the device falls within an exemption from the tax.  Such exemptions include those for eyeglasses, contact lenses, and hearing aids; as well as for devices that are generally purchased by the general public at retail value for individual use.

Reporting Requirements
Medical device manufacturers and importers must report the medical device excise tax on a quarterly basis using Form 720, Quarterly Federal Excise Tax Return, which may be filed electronically or on paper.  Payment is due with the return.  Further details on deposit requirements are available in the Instructions to Form 720 and Chapter 12 of IRS Publication 510.