AAFCPAs would like to make clients aware that, effective January 1, 2018 the “moratorium” on medical device excise taxation expired, which affects many companies in the life-sciences, including those focused on bio-medical, pharmaceutical, or manufacturing & distribution. As you may recall, the Obama administration enacted the “Protecting Americans From Tax Hikes Act of 2015” (“PATH Act”) which imposed a moratorium on medical device excise tax (“MDET”) beginning on January 1, 2016, and ending on December 31, 2017. The recently enacted tax legislation does not extend the moratorium.
With the return of MDET, AAFCPAs advises clients to prepare for the reimplementation of this federal excise tax. The MDET is reported on Form 720, Quarterly Federal Excise Tax Return. The first quarterly return for the medical device excise tax is due April 30, 2018, for the months of January, February and March 2018. The payment of this tax is due with the return.
MDET is a 2.3% tax on medical devices that was enacted beginning with January 1, 2013. The tax applies to manufacturers and importers of certain medical devices. Generally, a “taxable medical device” is a device listed with the FDA under section 510(j) of the Federal Food, Drug and Cosmetic Act. This includes all biologic devices that are listed with the FDA. Section 201(h) of the FFDCA defines “device” as an “instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article.” All such devices are subject to the 2.3% excise tax unless a specific exemption applies.
The MDET is particularly onerous due to its complexities and reporting requirements, and it essentially amounts to a sales tax applied to members of a targeted industry group regardless of a company’s profitability. The medical device industry has made numerous requests to repeal the tax, arguing that it may jeopardize jobs or force companies to scale back critical research.