Fall 2012 issue of Horizons

Health Care Reform Medical Devise Excise Tax

countries that export to the United States to register and annually update the devices they manufacture, prepare, propagate, compound, assemble, process, repackage or relabel for human use, the IRS expects most businesses to know whether or not their products are subject to the excise tax. Retail Exemption The legislation exempted sales of medical devices (determined by the IRS) that are of a type generally purchased by the general public at retail for individual use. Specifically exempted are:

As a reminder, the Patient Protection and Affordable Care Act and the Health Care and Educational Reconciliation Act of 2010 will impose a new tax on medical devices. The new tax goes into effect January 1, 2013. For sales made after December 31, 2012, manufacturers, producers and importers of medical devices must pay a 2.3% tax on the sales price of a taxable medical device. The tax is imposed at the legal entity level and is not reported on a consolidated basis. The applicable sales and tax must be reported quarterly on Form 720 Quarterly Excise Tax. The first Form 720 that will include the new tax is due April 30, 2013. Taxable Medical Devices Medical devices are defined under Section 201(h) of the Federal Food, Drug and Cosmetic Act (FFDCA) and include a broad range of devices for human use includes those: ∙ Intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment or prevention of disease ∙ Recognized by the official National Formulary or the United States Pharmacopoeia ∙ Intended to affect the structure or any function of the body and that don’t achieve their primary purposes through chemical action within or on the body and aren’t dependent upon being metabolized for the achievement of their primary intended purpose More specifically, a device includes an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or similar or related article and any component part or accessory. Since the FDA generally requires owners and operators of places of business that are located in the United States or in foreign

∙ Eyeglasses

∙ Contact Lenses

∙ Hearing Aids

Other exempt items include bandages, applicators, pregnancy test kits, diabetes testing supplies, denture adhesives and snake bite kits. Taxable Event Sales and leases of taxable medical devices are taxable events. If a manufacturer uses the article for any use other than in the manufacture of another taxable article, for example as a demonstration product, the tax attaches to that use. If the product is given away free of charge as a promotional item, the excise tax is still due.

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