Tax Insights: New US Medical Device Excise Tax

What it means for your company

Issue 2013-16

Since January 1, 2013, manufacturers, producers and importers of medical devices have been liable for a 2.3% US federal excise tax, known as the Medical Device Excise Tax (MDET), on sales made in the US.

If your company manufactures, produces or imports medical devices, now is the time to consider the MDET.

During the recent US government shutdown, the Republican Party tried to repeal the MDET. The effort failed – despite industry lobbying – so the MDET continues to apply.

The MDET applies on sales of any medical device that is intended for humans. The definition encompasses an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article.

It also includes associated parts and accessories that are:

  • recognized in the official National Formulary, or the US Pharmacopeia, or any supplement to them
  • intended for use in the diagnosis, cure, treatment or prevention of disease or other conditions, or
  • intended to affect the structure or any function of the body, excluding products that rely on:
    • a chemical reaction within or on the body, or
    • being metabolized to achieve their primary intended purposes

Four categories are exempt from the MDET:

  • products exported or destined for export
  • components for further manufacture
  • products sold for non-human use eyeglasses, contact lenses, hearing aids or ‘any other medical device determined by the Secretary as generally purchased by the general public at retail for individual use’

Generally, the MDET must be paid twice each month. However, IRS Form 720, ‘Quarterly Excise Tax Return’ must be filed in the month following the calendar quarter.

You should estimate the cost of the MDET to your company and its effect on your business operations.

Also, review any projections already made and the underlying assumptions, given the many uncertainties regarding exceptions and pricing.

Equally important, consider any planning steps that could mitigate the tax.