Medical Device Excise Tax: Do You Have to Pay?– July 17, 2013

The medical device excise tax has been in effect since January 1, 2013. The tax is 2.3% of the sale price of certain medical devices and is reported quarterly on Form 720. If you are a manufacturer, producer or importer of medical devices you may be required to pay this tax.

What Is or Is Not Taxable

As defined in the Federal Food, Drug & Cosmetic Act (FFDCA), a taxable medical device is any device intended for humans. A pretty broad definition, there are several exclusions. The “retail exemption” excludes any device that can be classified as “over-the-counter” or any device that is available to consumers who are not medical professionals and are not primarily used in medical institutions. This includes eyeglasses, contact lenses, hearing aids and medical devices that are generally purchased at retail for individual use. Certain devices that qualify as durable medical equipment are also exempt, such as prosthetics, orthotics and supplies, and equipment that can be purchased under Medicare Part B payment rules.

There are also certain transactions that would make an otherwise taxable device exempt from the tax. If one of the below transactions applies and is properly documented, the device will be exempt. The device must be:

  • used by the purchaser for further manufacture;
  • exported or sold to a purchaser for export;
  • used by the purchaser as supplies for vessels or aircraft;
  • sold to a state or local government for its exclusive use;
  • sold to a nonprofit educational organization for its exclusive use; or
  • sold to a blood collector organization for its exclusive use in the collection, storage or transportation of blood.

Determining the Impact
Determining if you are subject to the tax can be fairly easy; however, the calculation of the tax itself can be complicated and involved. The tax rate is intended to be applied to the price at which the articles are sold to wholesalers. And, of course, this isn’t without its own exceptions. There are also several adjustments that must be made in order to determine the price that should be taxed.

Changing Tide?

Senator Max Baucus (D-Mont.), chairman of the Senate Finance Committee, and Senator Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, are currently soliciting feedback on what priorities should be included in their comprehensive tax reform package — including the fate of the medical device tax. They are requesting feedback through other Senators no later than July 26, 2013. If you would like to share the impact of this tax on your business, visit www.medicaldevices.org/contact-congress to contact your local senator.

If you are unsure if this tax applies to your business or if you need help in calculating the tax, contact Hannah Prenglerat hprengler@cohencpa.com.


This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.