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IRS Requests Feedback Regarding Excise Tax on Medical Devices

Posted 8:23 PM by

You may have heard about the Health Care and Education Reconciliation Act of 2010, designed to make changes to the previously passed Patient Protection and Affordable Care Act. But you may not have heard that the Internal Revenue Service (IRS) is inviting the public to comment on issues that have arisen from this act. Specifically, in December 2010 the IRS issued Notice 2010-89, which invites feedback on the new excise tax on medical devices. The 2.3% excise tax will be applied to all taxable sales of medical devices after December 31, 2012.

Section 4191(b)(1) defines a taxable medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part or accessory, which is:

  1. Recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them,
  2. Intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, or
  3. Intended to affect the structure or any function of the body, and which does not achieve its primary intended purposes through chemical action within or on the body and which is not dependent upon being metabolized for the achievement of its primary intended purposes.

According to Section 4191(b)(2), a taxable medical device does not include eyeglasses, contact lenses, hearing aids, or any other medical device determined by the Secretary to be of a type which is generally purchased by the general public at retail for individual use. In addition, medical devices are tax-exempt if they are not sold to an end user (sold to a manufacturer for further development or sold for export).

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