05.21.13
Acknowledging that the medical device excise tax is law, it still is in effect and ultimately will be required to be remitted without penalty (fourth-quarter filing 2013). There are fundamentals that deserve consideration and tasks that require compliance. They include:
2. Sales on devices manufactured on behalf of another manufacturer (specification developer) or contract manufacturing. Once again, even if the medical device is determined to qualify for the tax if sold domestically, if the device is manufactured on behalf of another manufacturer (or entity) that provided the specification, formula, recipe, etc., to manufacture the product, the sales derived from that revenue will be exempt from the MDET after the manufacturer has completed IRS form F637.
Conversely, the customer who purchases these devices will become the responsible party qualifying to pay the MDET (F737 will require identifying the specification developer).
3.Retail exemption facts and circumstances rationale. So your medical device is listed; it may even require a prescription. It may still qualify for exemption from the MDET based on certain facts and circumstances that, when fully evaluated, make for an argument that your medical device is exempt.
Some of the facts and circumstances include the following:
– Devices with “over the counter” specified in their FDA listing; and
– Parenteral and enteral nutrition and DME and orthotic equipment that is purchased through Medicare Part B.
4. Compliance. Important figures to keep in mind are 108,695 and April 30, 2013. The first is the revenue (in dollars equivalent to $2,500 of excise tax due) a medical device manufacturer must realize in one quarter (three months) that would qualify or be subject to the MDET to be required to file a Quarterly Federal Excise Tax Return. The second was the filing date of the first quarterly filing. The quarterly filing is accomplished by completing IRS Form 720 as revised in January 2013, referencing line 136 for Taxable Medical Device Sales Price.
If the threshold of $2,500 of MDET is not met in the quarter, the filing and remittance can be deferred until it is met in a subsequent quarter. Remittance of MDET due is expected to be through semimonthly deposits to the IRS, once again using the $108,695 in medical device taxable revenue as the threshold. If you determine that your firm exceeded $108,695 in taxable medical device sales in the first quarter and you haven’t yet performed any or all semimonthly deposits, the IRS has provided you a reprieve. The tax still will be due.
However, you will not be assessed a penalty for late payment through the end of the third quarter. You will, however, need to provide evidence of intent to meet the requirements of determining, collecting and remitting the MDET. Documenting the steps your manufacturing firm has taken toward meeting the requirements of the MDET—even in the management review—is a strong recommendation.
- Exemptions. There are significant exemptions to the MDET that may have been overlooked in the early days of implementation, even if the manufacturer has determined its medical device meets most of the criteria to qualify for paying the tax. Let’s take a look at the most significant ones:
2. Sales on devices manufactured on behalf of another manufacturer (specification developer) or contract manufacturing. Once again, even if the medical device is determined to qualify for the tax if sold domestically, if the device is manufactured on behalf of another manufacturer (or entity) that provided the specification, formula, recipe, etc., to manufacture the product, the sales derived from that revenue will be exempt from the MDET after the manufacturer has completed IRS form F637.
Conversely, the customer who purchases these devices will become the responsible party qualifying to pay the MDET (F737 will require identifying the specification developer).
3.Retail exemption facts and circumstances rationale. So your medical device is listed; it may even require a prescription. It may still qualify for exemption from the MDET based on certain facts and circumstances that, when fully evaluated, make for an argument that your medical device is exempt.
Some of the facts and circumstances include the following:
- The ability to purchase an equivalent device at a retail vendor, including “e-commerce” sites;
- Use of the device does not require professional medical training;
- The device falls into the U.S. Food and Drug Administration (FDA) classification “Physical Medicine Device”;
- The device must be used in a medical facility;
- The cost of the device is significant for the average citizen;
- The device is classified as an FDA Class III—the highest compliance level;
- The device does not fall into 21 CFR statutory classifications parts; and
- The device qualifies as durable medical equipment (DME) per Medicare Part B rental reimbursement basis. “Safe Harbor” requirements are:
– Devices with “over the counter” specified in their FDA listing; and
– Parenteral and enteral nutrition and DME and orthotic equipment that is purchased through Medicare Part B.
4. Compliance. Important figures to keep in mind are 108,695 and April 30, 2013. The first is the revenue (in dollars equivalent to $2,500 of excise tax due) a medical device manufacturer must realize in one quarter (three months) that would qualify or be subject to the MDET to be required to file a Quarterly Federal Excise Tax Return. The second was the filing date of the first quarterly filing. The quarterly filing is accomplished by completing IRS Form 720 as revised in January 2013, referencing line 136 for Taxable Medical Device Sales Price.
If the threshold of $2,500 of MDET is not met in the quarter, the filing and remittance can be deferred until it is met in a subsequent quarter. Remittance of MDET due is expected to be through semimonthly deposits to the IRS, once again using the $108,695 in medical device taxable revenue as the threshold. If you determine that your firm exceeded $108,695 in taxable medical device sales in the first quarter and you haven’t yet performed any or all semimonthly deposits, the IRS has provided you a reprieve. The tax still will be due.
However, you will not be assessed a penalty for late payment through the end of the third quarter. You will, however, need to provide evidence of intent to meet the requirements of determining, collecting and remitting the MDET. Documenting the steps your manufacturing firm has taken toward meeting the requirements of the MDET—even in the management review—is a strong recommendation.