New Excise Tax for Medical Devices and Prescription Drugs
On March 23, 2011, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). On March 30, 2011, he signed the Health Care and Education Reconciliation Act of 2010, amending the PPACA (collectively “the Act”). The Act provides for a new excise tax on the sale of taxable medical devices and certain branded prescription drugs.
Medical Device Excise Tax
The Act amends Chapter 32 of the Internal Revenue Code establishing a new excise tax on manufacturers or importers of taxable medical devices. The tax is equal to 2.3% of the sale price of medical devices sold after December 31, 2012. Certain medical devices, such as contact lenses and hearing aids purchased by the general public at retail stores, are exempt.
Some members of Congress believe the medical device tax does not meet the health care reform objective to reduce consumer health care costs. Health care consumers may have to bear the burden of the tax because of the inelastic demand for medical devices. Currently, there are three bills in the House and two bills in the Senate seeking to repeal the new medical device excise tax. You can read the full text of the bills and track their status here.
Prescription Drug Excise Tax
Additionally, the Act provides for a new prescription drug excise tax. The $2.5 billion excise tax is an aggregate annual fee imposed on branded prescription drug manufacturers and importers with gross receipts over $5 million from sales to specified government programs.
The IRS issued Notice 2011-9, 2011-6 I.R.B. 459 in December of 2010, describing the proposed fee calculation method and the pharmaceutical manufacturers subject to the tax. The IRS has recently issued new guidance outlining an error dispute resolution for the calculation of the fee.
Prior to May 16, 2011, the IRS mailed a notification of the proposed fee to individual entities. If the company believed that the notification contained an error in the mathematical calculation, it was required to submit a written error report to the IRS postmarked by June 1, 2011, in order for the correction to be considered. Error reports must detail how the entity determined an error occurred and a proposed correction.
The attorneys at Fuerst Ittleman, PL are knowledgeable in both tax and food and drug law. If you have questions regarding the medical device excise tax, prescription drug excise tax, or the error dispute resolution procedure described above, please contact us at firstname.lastname@example.org.