Medical device excise tax could return in 2020
By Bill Borden
The Medical Device Excise Tax (MDET), initially enacted in 2010 as part of the Affordable Care Act ACA), has been suspended by subsequent legislation since January 1, 2016. Without enactment of further legislation continuing the suspension of the tax (or repealing the tax entirely), the tax would be reinstated on January 1, 2020.
While a further suspension of the 2.3 percent excise tax on medical devices has bipartisan support in Congress, a number of challenges are creating unpredictability for those companies that may be impacted by a possible reinstatement of the tax.
There is bipartisan support for extending the moratorium,” said Deborah Gordon, managing director at KPMG’s Excise Tax Practice, Plus, she noted that “some members of Congress also support an outright repeal of the tax – but enacting repeal legislation soon may be less likely than extending the moratorium, for a variety of reasons.”
It is possible that Congress could act to extend the moratorium before the end of this year – most likely by adding the provision to a larger bill, such as a “must pass” spending bill. However, the larger political environment and the fairly short amount of time left for legislative activity, among other issues, could make including tax provisions in a year-end bill particularly complicated this year, Gordon said.
If Congress does not act before the end of this year to extend the current moratorium, where does that leave manufacturers that could face a return of MDET, which would have an initial semi-monthly deposit due January 29, 2020? It is unclear.
In 2017, legislation was not enacted before the end of the year to extend a previous two-year moratorium on the MDET beyond the end of the 2017 calendar year. However, on January 22, 2018, legislation was enacted reinstating the MDET moratorium retroactive to January 1, 2018.
Thus, it is possible that, if legislation to extend the MDET moratorium is not enacted by December 31, 2019, the matter could be addressed in early 2020. If this happens, it is also possible that Congress might make an extension of the moratorium retroactive to the beginning of 2020 – but such retroactivity is not certain. Thus, it is important to be prepared for the possibility that the MDET might apply for at least some period of time after the end of this year.
Accordingly, Gordon says that manufacturers may wish to develop some contingency plans in case legislation addressing the MDET is not enacted before the end of this year. Manufacturers and importers of taxable medical devices should consider taking the following steps:
- Review existing MDET processes and procedures
- Review tax base calculations
- Consider constructive sale price methods to potentially reduce the tax base
- Identify new products that may be subject to the tax
- Communicate with customers to obtain required paperwork to make tax-free sales or claim refunds for nontaxable transactions
- Consider adjustments to contracts and invoices to take the MDET into account
- Analyze technology to minimize the tax compliance burden
- Consider end-of-year planning opportunities to mitigate potential MDET exposure in 2020.
Please contact Bill Borden at KPMG to speak with Deborah Gordon about this issue.
