Tax Alert

Federal Excise Tax on Medical Devices to Go Into Effect

(July 11, 2012)

The 2.3 percent manufacturer’s excise tax imposed on sales of medical devices will go into effect as planned as a result of the U.S. Supreme Court upholding the constitutionality of the Patient Protection and Affordable Care Act (PPACA). The excise tax applies to taxable medical devices sold after Dec. 31, 2012, by a manufacturer, producer, or importer.

The law broadly defines taxable medical devices as any instrument, apparatus, machine, contrivance, implant, in vitro reagent, or similar article, including any component, part, or accessory intended for use in the diagnosis of disease or other conditions, or for the cure, mitigation, treatment, or prevention of disease.

An exclusion from the tax is provided for eyeglasses, contact lenses, hearing aids, or any other medical device classified as generally purchased by the public at retail locations for individual use. In addition, exclusions are available for resale transactions, export sales, sales to state and local governments, and other similar transactions. The proposed regulations provide additional guidance regarding the taxability of certain items.

As they work to comply with the excise tax, sellers of medical devices should evaluate which products are taxable, determine any available exemptions, and finalize a compliance plan that considers excise tax registration obligations, excise tax collection, return preparation and due dates, and excise tax deposit processes and due dates. Sellers should also consider the components of the taxable base, when a taxable event occurs, and documentation requirements for any exempt sales.

For More Information
Will Ault

Dan Megathlin

DISCLOSURE REQUIRED BY U.S. TREASURY DEPARTMENT CIRCULAR 230: Crowe Horwath LLP must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.  

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