Federal Medical Device Excise Tax Scheduled to Take Effect on January 1, 2013

Tuesday, May 22nd, 2012

 
 
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The new federal medical device excise tax, which Congress created as a part of the Patient Protection and Affordable Care Act (PPACA) of 2010, is set to take effect on January 1, 2013. In preparation, the Internal Revenue Service (IRS) issued proposed rules for implementing this new tax in February. See the proposed regulations here.

Once effective, this portion of the PPACA will impose a 2.3% excise tax on the sale of certain medical devices by manufacturers or importers in the United States. Manufacturers and importers would be responsible for reporting and paying the tax, not the consumer.

For purposes of the excise tax, a "medical device" is a device intended for human use that meets the definition of "device" in section 201(h) of the Federal Food, Drug, and Cosmetic Act. According to that law, this definition includes any instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar article, including any component, part, or accessory, that is intended for use in the diagnosis or treatment of a human disease, or intended to affect the structure or any function of the body, but does not include drugs. Medical devices intended for use in the treatment of disease in animals will not be subject to the excise tax.

There is still some uncertainty as to whether the excise tax will take effect. Since its enactment in 2010, several states and organizations have filed suit seeking to overturn the PPACA. Decisions in a pair of those cases were appealed, and, in March 2011, the Supreme Court heard oral arguments in those appeals in one case. While the primary issue before the Supreme Court is the constitutionality of the PPACA's individual mandate provision, there is also the question of whether the other provisions of the PPACA can remain in effect if the Court holds the individual mandate unconstitutional. If the Supreme Court rules that the individual mandate provision violates the Constitution, the Court may either (1) invalidate the entire PPACA (and the medical device excise tax, by extension, will be overturned as well), or (2) "sever" the individual mandate provision and allow the remaining provisions of the PPACA to remain effective.

A decision is expected by the Court in June.


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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

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Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

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