Medical Device Excise Tax

What is it?

Taxable medical devices are devices that are required to be listed with the FDA under FFDCA Section 540(j) and 21 CFR Part 807.  These items are subject to a 2.3% manufacturer’s excise tax.  Excise taxes fall under the scope of Internal Revenue Code Chapter 32 and are generally calculated and paid quarterly using Form 720 Quarterly Federal Excise Tax Return.

When does it take effect?

The medical device excise tax takes effect on January 1, 2013.

Are there any exemptions?

There is an exemption for devices purchased at retail establishments by the general public.  To qualify for the retail exemption, a device must be regularly available for purchase and use by individual consumers who are not medical professionals.

There’s also an exemption for certain sales of taxable medical devices requiring further manufacturing (i.e., items sold as a component part of another taxable article).  To qualify for this exemption, all parties must be registered with the IRS—this includes the manufacturer, first-purchaser, and even second or third purchaser if applicable.

How do I register for this exemption?

Registration to be exempted from the medical device excise tax can be accomplished via Form 637 Application for Registration for Certain Excise Tax Activities.

When purchasing tax-exempt items for further manufacturing, the purchaser’s registration number needs to be given to the seller and noted in writing (for example, written on the purchase order or other document furnished to the seller in connection with a sale).  Likewise, the seller must indicate to the purchaser that the items being purchased would normally be subject to the medical device surtax but is not since the purchaser provided the required certification.

How is the tax calculated?

The excise tax is computed on total sales price.  Sales price includes packaging costs and any charge incident to placing the article in a condition to be packed and ready for shipment.  Sales price does not include any of the following:

  • Manufacturer’s excise tax
  • Transportation charges pursuant to the sale
  • Delivery, insurance, installation, or retail dealer preparation charges
  • Discounts and rebates,
  • Local advertising charges
  • Warranty charges paid at the purchaser’s option (required warranty costs are taxable)

How do I pay this tax?

Excise taxes should be paid on a semimonthly basis unless the net tax liability is $2,500 or less for the quarter.  The payment due date is the 14th day following the end of the period.  For example, taxes for the semimonthly period January 1 – 15 are due by January 29.  These deposits are required to be made by electronic funds transfer, which should be initiated one day before the due date in order to be received on time.

What tax filings need to be made and when?

The medical device excise tax should be reported to the IRS on a quarterly basis via Form 720 Quarterly Federal Excise Tax Return.  The due dates for the quarterly filing are as follows:

  • Quarter 1 (January, February, March) – due by April 30
  • Quarter 2 (April, May, June) – due by July 31
  • Quarter 3 (July, August, September) – due by October 31
  • Quarter 4 (October, November, December) – due by January 31

Copies of the tax return and all records showing that the correct tax has been paid should be kept for 4 years.

For more information regarding this tax, or any other tax or accounting issue you may have, please don’t hesitate to contact us at (412) 734-1691 or via email at