Mar 30, 2011

The medical device excise tax provision passed last year as part of the Patient Protection and Affordable Care Act in the US has drawn heavy fire from industry groups, with entities such as the Advanced Medical Technology Association (AdvaMed) and the Medical Device Manufacturers Association (MDMA) pushing for either clarification of how the rule will be implemented and enforced or for outright repeal of the tax. Set to go into effect in 2013, the rule in question would levy a 2.3% tax on all medical device manufacturers' US sales revenues.

A group of senators had proposed an amendment in late 2009 exempting manufacturers with less than $100 million in revenues from the tax, but that amendment was not included in the final law. AdvaMed has focused on how the US Internal Revenue Service will implement the excise tax. In a March 22 comment letter submitted to the agency, AdvaMed offered several recommendations on what kind of guidance the IRS should issue regarding the tax:

  • No multiple taxation of the same device
  • Flexible definitions and rules to foster innovation
  • Minimal conflict between tax guidance and other industry regulations currently in force
  • Clear definitions of articles subject to taxation, as well as prices and timelines
  • Clear definition of which entity within a device's manufacturing chain is responsible for the tax
  • Minimal changes necessary to manufacturers’ accounting process in order to comply

The trade group further urged the IRS to clarify the definition of “manufacturer” for tax purposes to include only “physically transformative activities” such as reprocessing or remanufacturing of taxable devices. Questions regarding how the IRS would treat component and contract manufacturing were also raised by AdvaMed in the interest of avoiding multiple taxations of single devices. To that end, the organization recommended using contract manufacturing rules detailed in section 954 of the Federal Tax Code to deal with this issue, arguing that these rules are better developed and familiar to the industry. “The contract manufacturing rules pinpoint a single manufacturer, avoiding multiple taxation of the same device,” AdvaMed stated. “They will also permit manufacturers to implement the excise tax consistent with their distribution networks.” While AdvaMed appears to have pivoted from fighting enactment of the new tax to negotiating the terms of its implementation, the MDMA has dug in its heels, reiterating on March 23rd its position that the tax should be repealed. Given that the MDMA’s membership comprises smaller-tier manufacturers whose bottom lines would be more acutely impacted than those of AdvaMed’s deeper-pocketed members, the group’s less compromising stance is understandable, but ultimately impractical. Perhaps the MDMA would better serve its member firms arguing for more favorable parameters of the new excise tax rather than against it altogether.


  • Stewart Eisenhart