Medical Device Excise Tax: Practical Answers to Eligibility, Exemptions, Pricing and Compliance — Tax Answers for Non-Tax Professionals
On April 30, all eligible medical device manufacturers or importers must pay medical device excise taxes for the first three months of 2013.
Is your firm or product line eligible?
Do you qualify for exemptions?
There are several possible exemptions and tests to avoid or minimize the tax. They include:
Retail; including purchase tests, use tests and design tests
OTC safe harbor
Durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) safe harbor
Then there’s the pesky issue of how to calculate the sales price to determine the taxes due. IRS Notice 2012-77 notes 5 different scenarios for calculating sales price. Which one applies to you?
In addition, the IRS has the right to audit and expects you to be able to justify your eligibility and exemption choices — and provide documented evidence to back up your stance. Are you ready?
The Medical Device Excise Tax has been one of the most controversial policies to affect the industry in decades. But the pain can be mitigated if you properly apply the exemptions provided and document your actions. FDAnews, in conjunction with medical device tax expert Dan Lynn, has created your personal pain management plan. In just 90 minutes, Mr. Lynn walks listeners through each element of the tax calculation. He guides you through 6 major questions everyone is asking:
What companies are subject to the tax and why?
How does the IRS determine what’s a taxable product and what’s not — some of the answers will surprise you!
Exemptions, exemptions, exemptions! How can I legally exempt various products from the tax?
If my products do apply, how do I determine the constructive sales price and when should I use it? Underpaying this tax is definitely not recommended.
Avoiding compliance woes — have I properly registered my company and product lines, what about selling to “sister” companies, or where do I send the money and how?
What about quirky stuff like combination products and kitting/convenience kits — what’s up with them?
Medical Device Excise Tax audio CD/Transcript listeners will:
Develop a basic understanding of the tax, with myths about the tax being debunked
Determine if your company is subject to the tax
Understand the 7 triggers that subject a company to the tax
Learn best practices and suggested models for evaluating your products for inclusion/exclusive of tax eligibility
Be able to determine if the retail exemption or facts and circumstances tests apply to your products
Be confident in your understanding of the OTC exemption; including applying the FDA’s online IVD Home Use Lab Tests database or device registration and listing database
Determine if the IRS considers your product a DMEPOS and can you exempt yourself
Understand Form 637 Activity Letter B and Activity Letter D and whether your product applies for further manufacturing and export exemptions
Feel confident in exempting yourself for contributions of devices to charitable organizations
What documentation is needed to provide “reasonable” support for exemptions in order to avoid potential IRS penalties for misclassification
What evidence does the IRS expect you produce to justify further manufacturing or proof of export exemptions
Understand “constructive sales price” for products that are sold directly to retailers, hospitals, and physician groups
Learn when to use the actual sales price versus the constructive sales price
If your taxable sales exceed $108,700, how to make semi-monthly deposit against taxes due
IRS requires use of Electronic Funds Transfer (EFTPS) — how do I do that?
How does the IRS feel about combination products and kitting sets? Will we get more guidance?
What’s an appropriate paper trail that will satisfy the IRS in case they audit me?
6 considerations for mitigating the tax; for example, R&D credits, property tax abatements, federal grants
This audio CD/Transcript is a must for professionals in the device industry, including:
Medical device manufacturing and executives
US importers of medical devices
Regulatory affairs and compliance professionals
Strategic planning and business development staff
Financial accountants and support staff
Dan Lynn is a CPA, MBA, Tax Partner at Beene Garter. Mr. Lynn offers more than 20 years of experience working with medical device manufacturers and importers. He has specialized knowledge in the areas of manufacturing and distribution, as well as continuing care retirement communities. His areas of expertise include mergers and acquisitions, business transition, accounting methods and tax transactional consulting. He also has experience in tax due diligence, FAS 109, consolidated corporations and the taxation of partnerships, S corporations and trusts. Mr. Lynn earned his Bachelor of Arts Degree and his Master of Business Administration in Accounting from Michigan State University. He currently serves as an adjunct professor of taxation at Grand Valley State University, and also serves on their MST and MSA Advisory Panels. His professional memberships include the American Institute of Certified Public Accountants (AICPA), the Michigan Association of Certified Public Accountants (MACPA) and the Association for Corporate Growth (ACG).