Managing Director, Accounting Methods & Credits, KPMG LLP
Jan 09, 2018
From the KPMG TaxWatch
While the corporate tax world has been primarily focused on the provisions of recently-enacted U.S. tax reform, medical device manufacturers and importers again must pay the excise tax that sprung back to life on January 1st when the two-year moratorium suspending medical device excise tax (MDET) expired. The tax is 2.3% of the sale price of the device. Absent congressional action, the first semi-monthly deposit of MDET will be due January 29, 2018, and the first MDET return—filed on Form 720, Quarterly Federal Excise Tax Return—will be due April 30, 2018.
While proposals to extend the moratorium in Congress have been made, there is much uncertainty regarding passage of legislation in the foreseeable future. Accordingly, taxpayers need to be prepared to comply with deposit and payment requirements by the applicable deadlines.
Section 4191 imposes a medical device excise tax on the sale, use, or lease of a "taxable medical device" by its manufacturer or importer at a rate of 2.3% of the price for which each device was sold. Certain adjustments to the sale price are allowed, and in some situations, a constructive sale price may be used to determine the tax base. In addition, export sales are generally not subject to the tax, subject to certain registration requirements.
The definition of a “taxable medical device” is any device listed with the Food and Drug Administration (“FDA”) under section 510(j) of the Federal Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807, pursuant to FDA requirements. There are exemptions provided for eyeglasses, contact lenses, and hearing aids, and devices of a type generally purchased by the general public at retail for individual use (the “retail exemption”).
In December 2015, Congress enacted a two-year moratorium on application of the medical device excise tax on taxable medical devices sold, used, or leased between January 1, 2016, and December 31, 2017. Thus, manufacturers and importers of devices were not required to make semi-monthly deposits of the excise tax or to file Forms 720 relating to those sales.
With the expiration of the moratorium, the medical device excise tax is currently effective with respect to sales, uses, and leases of taxable medical devices by manufacturers and importers. Affected companies will need to begin making semi-monthly deposits of tax and filing excise tax returns.
What you should do now
Manufacturers and importers of taxable medical devices should consider taking the following steps:
Whether Congress chooses to extend the moratorium or not, there still may be an opportunity to claim refunds of MDET incurred during open past periods. There are a number of ways to identify potential refund opportunities, including: