Is your company a U.S manufacturer or importer of medical devices? If so, then the federal medical device excise tax which started January 1, 2013 will impact your company.
Why am I talking about a federal excise tax on a state and local tax blog? Well, the medical device excise tax is similar to a state and local sales tax in many ways:
- The medical device excise tax is a tax based on the actual selling price of the device (net of permitted exclusions)
- The tax requires invoice level substantiation.
- The tax base or sales price must be examined to determine what should be included or excluded (i.e, discounts, rebates, etc.)
- Exemptions may apply.
- Pricing and subsequently, the tax, may depend on the sales channel.
- How a device is labeled may impact the taxation of the device.
- Requires frequent filing (there is a registration and quarterly filing requirement along with semi-monthly deposits).
- There are filing and reporting penalties (also deposit penalties).
- Specific rules apply to situations involving contract manufacturers and leases.
What is the medical device excise tax?
It is a federal excise tax of 2.3% which is imposed on US manufacturers or importers on sales or taxable uses of medical devices. The tax must be paid to the IRS by the manufacturer or importer regardless of whether the tax is passed through or not.
ACTION REQUIRED SOON!
Semi-monthly deposits are required beginning January 29, 2013.
Returns are filed quarterly, beginning April 2013.
Companies may need to file IRS Form 637 and obtain a registration number.
QUESTIONS TO ASK
Is your device taxable? Do any exemptions apply? Do you need to use "constructive pricing" rules? Does your company use a contract manufacturer? Is your device listed with the FDA? Is your device labeled correctly? Do you know what to include in the sales price or tax base? Is your system set-up to provide invoice-level substantiation?
If your company needs assistance in complying with this new tax, please contact me.