Medical Device Excise Tax Slated to Come Off Suspension January 1, 2018

by DMA Staff | Sep 27, 2017

This federal tax, imposed upon manufacturers and importers of medical devices, is part of the Patient Protection and Affordable Care Act (ACA), sometimes called “ObamaCare”. The MDET was suspended for calendar years 2016 through 2017; absent repeal or renewal of the suspension, the tax will again be imposed January 2018.

While the House and Senate in Washington struggle with the repeal or reform of the ACA, the medical device industry has separately pursued repeal of this unpopular tax without current success. As we reach mid-September, appearances are that the tax will again be imposed. And while that repeal or another suspension may yet occur, time now works against such before year’s end. Those subject to the MDET should consider now whether prudence dictates preparation for its revival.

Reviewing MDET mechanics and compliance operations in preparation of the new year is a first step; additional actions may reduce tax and administrative costs. The tax has proven difficult for manufacturers and importers to recoup by pricing adjustments in this highly competitive market; pre- and timely billing and collection during 2017 will avoid the tax and keep these funds in the business. Now may also be the time for reviewing historic compliance, making remedies, and reviewing whether outsourcing and software options may increase efficiency, and reduce administrative costs and audit risk.

There are several significant challenges to both the calculation and reporting of the tax:

  • What constitutes a medical device? Use of the Food and Drug Administration’s definition of a “listed medical device” is only the beginning of a complex facts-and-circumstances determination of taxability.
  • How to extract taxable transactions from accounting systems? Numerous transactions complicate both the identification of taxable medical device sales and the extraction of data from diverse accounting systems not designed for that operation.
  • What is the correct product price for tax calculation? Wholesale pricing with modifications is the standard; but there are new constructive sale pricing regulations that may apply.
  • How do I manage exemptions based upon 3rd party use in further manufacturing or exportation? Exemptions arising out of usage beyond the seller’s control require special memorialization and recordkeeping.
  • When is the MDET reportable, and how are later adjustments made?  Because the MDET is returned quarterly, rapid recognition of both the tax base and application of subsequent price adjustments is critical for calculation and remittance of the 2.3% tax.

DMA offers a full line of compliance, consulting and audit services, as well as its Medical Device Excise Tax Solution (“MDETS”) software, to meet all your MDET needs and goals. Implementation is non-intrusive and provides assurance that compliance will be timely and comprehensive. With your tax team, DMA excise tax experts identify and capture taxable medical device transactions; identify those individuals inside and outside of the tax department with critical roles in MDET management; review and resolve compatibility issues between software systems; and consider alternative solutions to implement a personalized, streamlined compliance process meeting your needs. DMA offers as an alternative its total outsource solution whereby we remotely and securely access data and prepare payments and returns for you.

Mark Watters
Technical Director
(800) 309-2110, est. 1999