The United States Internal Revenue Service (IRS) has released a finalized guidance report on the upcoming 2.3 percent medical device tax. The new tax will become active in January of 2013.
The IRS released a 58-page report on how it will enforce and regulate the upcoming tax. According to the report, the IRS will define a taxable medical device as any device listed with the United States Food and Drug Administration (FDA) under sec. 510(j) of its FFDCA and under 21 CFR pt. 807.
If a device is not listed with the FDA under the regulations listed above, it will not be taxed. However, a device may be taxed if the FDA determines that device should have been listed with the agency. In this situation, the manufacturer of the medical device will be required to pay the 2.3 percent tax starting on the date it was notified of the corrective action by the FDA.
Many medical device companies have publicly stated that they oppose the tax. They argue that the 2.3 percent medical device tax will discourage innovation. In addition, the new tax has been scrutinized due to the way it taxes a company’s income. Since the medical device tax is levied on revenue instead of profit, it may have a disproportionately negative impact on startups and other new medical device manufacturers.