Final Regs Diagnose New Medical Device Tax

By Ken Berry

 
Just a few heartbeats away from the New Year, the IRS has issued final regulations governing the imposition of a new excise tax on "medical devices," such as pacemakers and implantable defibrillators (TD 9604, Notice 2012-77 ).
 
Under the Patient Protection and Affordable Care Act of 2010 – the massive health care legislation commonly referred to as "Obamacare" – a 2.3 percent excise tax will be levied on sales of certain medical devices beginning January 1, 2013. The tax applies to manufacturers and importers, but generally doesn't affect individual consumers, at least not directly.
 
The Obamacare provision essentially follows the Food and Drug (FDA) definition of a medical device intended for use by humans. This includes devices ranging from X-ray and MRI machines all the way down to tongue depressors, but excludes certain items under FDA rules. For instance, biologics, devices intended solely for use by animals, software updates or sales of software, and most home medical equipment devices aren't subject to the tax.
 
A key exception to the tax applies to certain "retail items" purchased by the general public for individual use, such as eyeglasses, contact lenses, and hearing aids. Under the final regulations, a device is treated as an exempt retail item if it's regularly available for purchase and use by individual consumers who aren't medical professionals, and if the device's design shows that it's not primarily intended for use in a medical institution or by a medical professional.
 
The final regulations also clarify the "facts and circumstances" test to be used in determining if a medical device is exempt from the 2.3 percent excise tax because it's intended primarily for retail use. No one factor of the test is determinative. A device may qualify even if it doesn't meet all the factors or if it meets one or more of the negative factors. 
 
Devices that are purchased by telephone or online requiring minimal or no training from a medical professional are exempt. The IRS also issued interim guidance on "convenience kits." Although the excise tax will not apply to the sale of a domestically produced convenience kit that includes a taxable medical device, the tax will be assessed against a manufacturer or importer when that device is sold. 
 
Finally, the new regulations address various other issues, including a "safe harbor" for certain prosthetic or orthotic devices falling under the retail exemption; transitional relief for installment sales, leases, and long-term contracts entered into prior to March 30, 2010; and the semimonthly requirement for manufacturers to deposit the tax. 
 
Related articles:
 

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.