2.3% Tax on Medical Device Companies to Take Effect in 2018

| 21 December 2017 |  By 

As some companies cheer new tax cuts, medical device companies will ring in the new year with the reinstatement of a 2.3% tax put in place by the Affordable Care Act, after efforts to permanently repeal or delay the tax failed.

Scott Whitaker, president and CEO of the device industry group AdvaMed, sent a letter to President Donald Trump on Wednesday, highlighting Congress’ failure “to address a punitive tax that singles out the American medical technology industry, threatening jobs in the U.S. and future innovations for patients, and washing away the benefits of tax reform for our companies.”

Whitaker pointed to US Department of Commerce data showing that the medical technology sector saw a loss of nearly 29,000 jobs while the medical device excise tax was in effect prior to its suspension at the end of 2015.

Bills were introduced in the House and Senate this year to permanently repeal the tax though they were not taken up.

So barring an unlikely addition to the short-term spending bill to keep the government open through mid-January, device companies will begin making payments next month and going forward on a biweekly basis, Whitaker explained.

“Companies will spend millions in compliance costs to ensure processes and reporting are up and running to be ready to submit money to the IRS and avoid steep compliance penalties,” he wrote to Trump.

“Many companies have delayed these efforts in anticipation of repeal or further suspension of the tax, and will be incurring new costs that are not recoverable in a retroactive fix. If the tax is subsequently repealed or suspended next year, the IRS will have to go through the cumbersome and lengthy process of refunding payments to companies. This process is made more challenging by the fact that the money is deposited in the general Treasury accounts and is based on individual company sales. If companies make payments and the tax is retroactively repealed/suspended, then it is likely the IRS will have to issue guidance and set up an administrative process to issue numerous refund claims from companies,” Whitaker added.

Editor's Note: Article updated on 12/21 as it incorrectly said the tax rate was 3.2%. The tax rate will actually be 2.3%. We regret the error.


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