Medical device excise tax
After a two-year hiatus, the Medical Device Excise Tax (MDET) is set to return January 1, 2018.
The MDET first took effect in 2013 as part of the 2010 Affordable Care Act. The MDET was then suspended in 2016 and 2017. Congress has indicated it may not include any MDED-related provisions in the proposed tax bills, and absent any further Congressional action the MDET will become effective again January 1, 2018.
In the initial implementation many medical device companies faced challenging circumstances in their attempt to comply with the tax, including:
- Complicated MDET regulations and taxability
- A lack of IRS guidance
- Safe harbor pricing rules based on “industry wide” percentages instead of medical device industry subsectors
- Exemptions that are difficult to substantiate and document
- Challenges in determining who and what is subject to the tax
Medical device companies have stated they’ve struggled with the MDET compliance burden and are uncertain if they have paid the correct amount of tax. In particular, companies that used the IRS “safe harbor” percentages may have overpaid. In an attempt to standardize how all medical device companies are treated, the safe harbor percentages often produce results that are not reflective of the price allowed under this tax.
Generally, companies overpaid by 20% or more. Many manufacturers have received significant savings by identifying exempt devices, re-analyzing the safe harbor pricing, and separating out the costs of transportation and installation. Medical device manufacturers also have the opportunity to construct their own specific fair market price, which has created significant savings for many companies.
How Grant Thornton can help
Our team can assist with the following MDET items:
Don’t miss this chance
- Preparing to comply for 2018
- Supporting the compliance function and quarterly filing process
- Identifying potential overpayments and refund opportunities
- Assisting with audit defense
MDET payment and filing requirements are poised to return soon. Ensure you are paying the appropriate amount of MDET. Refund opportunities still exist for the 4th quarter of 2014 and all four 2015 quarters.