Medical Device Excise Tax

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Medical Device Excise Tax The Story So Far……….

Florida Medical Device Symposium

May 7, 2013


Today’s Presenters

David Criner, CFO, Oscor Inc. Jim Newman, Managing Shareholder, GSS Debbie Fallucca, Tax Principal, GSS

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Medical Device Excise Tax


Today’s Agenda • Brief History • What Have We Learned through Experience: Which devices are taxable Who is subject to tax Exemptions Determining Sales Price Compliance

• Q&A May 7, 2013 3



History of Medical Device Excise Tax

• Enacted as part of Health Care Reform in 2010, effective date Jan 1, 2013

• IRS issued proposed rules in Feb 2012 • Final regulations and interim guidance issued Dec

2012 • Additional guidance expected in 2013 • Ongoing efforts to delay or repeal

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Which devices are taxable?

• Any device containing a three-letter FDA product code. • All medical devices falling within this definition are

taxable unless an exemption applies. • Taxable when sold out of inventory even if it was

inventory as of 12/31/12. • Retail exemption – IRS will not issue advance ruling: Purchase test Use test Design test

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Who is Subject to Tax? It is imposed on a manufacturer or importer of a taxable medical device.

• The first sale in the US following the completion of manufacturing or importation triggers the tax.

• Additional triggers: lease or rental, demonstration uses, loaners, use in

research, intercompany sales. • Interim guidance on charitable contribution of medical devices: not

taxable if donated to a 501(c)(3) organization. • Contract manufacturing.

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Exemptions

“Further manufacturing” • applies to buyers of taxable medical devices for use in further

manufacture or for resale to a buyer for further manufacture. • Form 637 activity letter “B”

“Export” • applies to buyers with their principle place of business in the US

purchasing taxable medical devices for export or for resale to a second purchaser for export.

• Form 637 activity letter “D”

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Exemptions

Within 6 month of exempt sale, you must have proof of further manufacture or export.

Very detailed rules at Internal Revenue Regulation Section 48.4221-2 for further manufacture, and 48.4221-3 for export.

Your foreign customer does not need to register – the documentation requirements are on the seller.

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Determining Sales Price

The price for which a manufacturer sells a taxable article to an independent wholesale distributor is the applicable price for purposes of imposing the tax. There are general constructive pricing rules which the IRS may impose, and taxpayers may use, where a manufacturer sells other than to an unrelated wholesaler. Interim guidance in Notice 2012-77 provides a series of safe harbor constructive pricing rules for sales at retail, or to related retailers or related resellers. The safe harbor rules should not be used if you have any sales to an unrelated wholesaler for a particular product. May 7, 2013 9



Compliance

Form 637 Application for Registration • the application gets assigned to an IRS Agent • must list social security numbers for all company owners and officers • must list all related companies • need separate certificates for further manufacturing and export

exemptions • follow-up Information Document Requests (IDR) are extremely

detailed, asking for customer and vendor lists, components of product cost, etc. Do you need to provide everything?

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Compliance

Tax is reported on Form 720, Quarterly Federal Excise Tax Return • You do not need the registration number to make EFTPS deposits and

file Form 720 • Deposits required semi monthly if tax exceeds $2,500 for the quarter –

deposits due 14th and 29th of each month – earliest business day if 14th or 29th fall on weekend or holiday

• Deposits and reporting required for each legal entity including disregarded entities

• Quarterly form due last day of the month following end of quarter

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Compliance

The interim guidance provides for relief from failure to deposit penalties for the first three calendar quarters of 2013, provided the taxpayer shows a good faith attempt to comply. What is a good faith attempt? No failure-to-pay or failure-to-file penalty relief is provided, but there are “reasonable cause” waivers available. Failure-to-register penalties start at $10,000, with an additional $1,000 per day of noncompliance.

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Compliance

What to expect in an Excise Tax Audit • IRS has about 200 excise tax auditors now – there will

be more. • Very strict about compliance regarding exemption

certificates. • You can go to www.irs.gov to confirm a registration

number, search “On-line Form 637 Registration Status”.

• MDET itemized on an invoice must be exactly what was paid.

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Compliance

Are your accounting system and your accounting personnel up to the task? • You don’t want to overpay – this tax is a real cost of doing business • You don’t want to underpay – the IRS is serious about excise tax compliance

AdvaMed released a survey in December 2012 that found the industry estimated $400 - $667 million necessary to implement MDET. 90% of the companies said current capabilities are not sufficient.

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Questions & Answers

Who has the first question?

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Gregory, Sharer & Stuart, CPAs 100 Second Avenue South, Suite 600

St. Petersburg, Florida 33701 (727) 821-6161

Contact information: Jim Newman, [email protected] Debbie Fallucca, [email protected]

mailto:[email protected]

mailto:[email protected]


Circular 230 disclaimer Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

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Medical Device Excise Tax

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