Medical device excise tax: moratorium considerations and FAQs.

• Author: Gordon, Deborah

On Dec. 18, 2015, President Barack Obama signed the Consolidated Appropriations Act, 2016, P.L. 114-113, which includes tax-related provisions in Division Q_, the Protecting Americans From Tax Hikes Act of 2015 (PATH Act). The PATH Act imposes a two-year moratorium on application of the medical device excise tax. This item discusses some frequently asked questions with respect to the medical device excise tax and the current state of the law.

[ILLUSTRATION OMITTED]

Overview

Before the PATH Act, Sec. 4191 imposed a medical device excise tax on the sale, use, or lease of a "taxable medical device" by its manufacturer or importer at a rate of 2.3% of the price for which each device was sold. Certain adjustments to the sale price were allowed and, in some cases, a constructive sale price was used. In addition, export sales were generally not subject to the tax, subject to certain registration requirements.

A taxable medical device is any device listed with the Food and Drug Administration (FDA) under Section 510(j) of the Federal Food, Drug, and Cosmetic Act (P.L. 75-717, as amended) and 21 C.F.R. Part 807, pursuant to FDA requirements. However, there are exemptions for eyeglasses, contact lenses, and hearing aids, and devices that are of a type that is generally purchased by the general public at retail for individual use (retail exemption).

Q: What does the moratorium mean?

A: Under the moratorium, the tax does not apply to sales of taxable medical devices between Jan. 1,2016, and Dec. 31,2017. Manufacturers and importers of devices sold during this period do not need to make semimonthly deposits of tax or file Forms 720, Quarterly Federal Excise Tax Return, relating to these sales.

Q: Does the moratorium provide for a refund of previously paid taxes?

A: No. Although some legislative proposals provided for a retroactive repeal of the tax, the moratorium as enacted does not provide for a refund of the medical device excise tax for sales before Jan. 1,2016.

Q: Why should companies be thinking about issues related to the medical device excise tax during the moratorium?

A: There may be opportunities to claim a refund of tax. For example, a company can still identify exports or price readjustments, such as rebates, that occur in 2016 and 2017 with respect to taxed devices sold before enactment of the moratorium. Any exports and price readjustments may give rise to refunds.

Refund opportunities might also arise from reexamining earlier transactions...