Congress might take action later this year to repeal or further delay the 2.3% medical device excise tax (MDET) imposed by Section 4191 on the sale of certain medical devices (e.g., pacemakers, joint replacements, and surgical tools) by manufacturers, producers, and importers. The MDET has been suspended twice by Congress, with the current legislative moratorium scheduled to expire after December 31, 2019.
In the absence of further Congressional action, the MDET will apply to certain sales, uses, and leases of taxable medical devices beginning January 1, 2020. The end of the current moratorium would mean that medical device manufacturers, producers, and importers would be required to report the tax and make semimonthly deposits to the IRS beginning in 2020.
Congress has departed for its summer recess and will return the week of September 8. Prior to the start of its recess, Congress passed a two-year bipartisan budget agreement suspending the statutory federal debt limit until July 31, 2021, and establishing overall discretionary spending caps for fiscal years beginning October 1, 2019 (FY 2020) and October 1, 2020 (FY 2021). When lawmakers return in September, the focus will be on passing FY 2020 appropriations bills. Spending legislation could be a vehicle for addressing tax legislative issues, such as the MDET.
The MDET currently is not being collected by the IRS because the moratorium that took effect in 2016 remains in effect through the end of 2019. While efforts to repeal or further delay the MDET have broad support and are being considered, medical device manufacturers and importers should evaluate their readiness to comply with the potential return of MDET beginning January 1, 2020. This evaluation should include a review of changes to their business since 2015 and an assessment of the availability and flexibility of their legacy compliance procedures.
Health Industry & Pharma Life Science Tax Leader, PwC US