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Proposed Regulations Call for 2.3% Tax on Medical Devices

The U.S. House of Representatives voted June 7 to repeal the medical device tax which is part of the Patient Protection and Affordable Care Act.  If finalized, these regulations will apply to all sales of medical devices after December 31, 2012.  The tax will be imposed upon the manufacturer, producer, or importer of the device and will be charged at a rate of 2.3% of the sales price.  The regulations provide a number of exemptions to the tax, the most prominent of which is the retail exemption allowing tax-free sales to sales for resale, use in further manufacture, or export.  In order to qualify for the exemption, registration must be completed with the IRS on Form 637.  The imposition of this tax has been a highly debated topic and many commentators have opposed the ratification of the new tax.  Commentators have asked for increased certainty and clarity surrounding the retail exemption.   The primary arguments against the tax include the fact that it will hinder innovation and cause job loss.  There is a fear that in order to compensate for the additional expenditure, companies will cut jobs and research and development spending.   

 

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