February 16, 2012
IRS Describes "Taxable Medical Device" Under HCERA's Excise Tax
This February, the IRS issued proposed regulations describing what is a "taxable medical device" for purposes of the excise tax imposed by the Health Care and Education Reconciliation Act of 2010 (HCERA or the “Act”). The definition has been linked to sections of the Federal Food, Drug & Cosmetic Act (FDA) and the accompanying regulations. HCERA created new Internal Revenue Code Section 4191 which creates a 2.3 percent excise tax on the total revenues of any company that manufactures medical devices. This excise tax will become effective after 2012.
This proposed regulation has been eagerly awaited by manufacturers, importers and producers of medical devices. For purposes of this law, the IRS uses the Food and Drug Administration (FDA) definition of "medical device”, which indicates that the device is one intended for humans and not generally purchased by the public at retail for individual use. The term taxable medical device does not include eyeglasses, contact lenses, hearing aids or other devices sold at retail for individual use. It also does not include veterinary devices, items sold for export or resale and items used for research purposes.
A taxable medical device may include, for example, any device, as defined under the FDA as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, that is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease. The FDA list is expected to be constantly updated and the FDA will notify the manufacturer or importer in writing that corrective action with respect to listing is required.
The proposed regulations provide that a "taxable medical device" does not include medical devices generally purchased by the general public at retail for individual use. The IRS explained will use a facts and circumstances analysis to evaluate whether a taxable medical device falls under the retail exemption.
The tax has been controversial and the industry has been strong in voicing opposition. As noted, these are proposed regulations at this time and the IRS is requesting comments and a public hearing has been scheduled for May 16, 2012.
If you have any questions related to the imposition of this tax, contact your Marcum Tax Professional or the proposed regulations are available for download on the IRS website www.irs.gov.