Medical Device Tax

Background

The Affordable Care Act (“Obamacare”) imposed a 2.3% excise tax on medical devices, to be paid by medical products manufacturers, producers, and importers. A two-year moratorium on the tax began in December 2015 and expired December 31, 2017. HIDA supports the permanent repeal of the tax. The tax applies to all regulated Food and Drug Administration (FDA) Class I, Class II, and Class III medical devices, with the exception of those products, “determined by the Secretary to be of a type which his generally purchased by the general public at retail for individual use,” including eye glasses, contacts, and hearing aids.

What Members Need to Know

In addition to supporting a renewed moratorium and ultimately full repeal, HIDA supports the Internal Revenue Service’s final regulation which included many changes important to HIDA members – specifically, the retail exemption. The exemption reduces some of the burden faced by the supply chain industry, such as: • The inclusion of medical supply stores and specialty medical stores in the definition of retail.
• Deeming purchases made by consumers via the internet or over the phone as retail.
• The acceptances of further examples of products that meet the retail exemption criteria, thereby providing additional insight into how the agency expands manufacturers to make determinations.

“Convenience kits” that include various medical products in a single package were source of confusion when the law was first enacted. The IRS released Interim Guidance clarifying that while domestically assembled convenience kits are exempt from the medical device tax, imported convenience kits are subject to the device tax – but only the amount allocable to the individual taxable medical devices within the kit.

Outlook

Congress has failed to extend the moratorium on the 2.3% excise tax on medical devices, and as such the tax took effect January 1, 2018. Bipartisan support for delay or repeal of the tax still exists and it is widely expected that Congress will ultimately delay the tax, but the timeline for any such action is unknown. Companies have been advised to be compliant with the tax as of January 1st, 2018 and be prepared to make their first payment on January 29, 2018. Congress faces a number of competing priorities in the early weeks of 2018, including a budget which expires on January 19th.

HIDA Member Resources