A part of Obama’s Affordable Care Act included a 2.3% excise tax on medical devices. I had one importer inquire about the excise tax today and the method for paying it. Unlike the Federal excise tax on alcohol, this tax is not collected via U.S. Customs at the time of import. It will be reported on Form 720, the Federal Quarterly Excise Tax Return form. The IRS has posted an FAQ website to answer some questions that medical device manufacturers and importers may have about the tax.
Here are some other key details about the Medical Device Excise Tax:
- It is a 2.3% tax on revenue, not profit.
- Medical devices purchased at retail for individual use are to be exempted. Examples include eyeglasses and hearing aids.
- The start date is the beginning of the new year, January 1, 2013.
Politicians are working on repealing this excise tax. With only three months left until the new year, manufacturers and importers should be consulting with their CPA and various accounting advisers to discuss which items will be affected by the tax.
Now that FDA has indicated that they will be charging importers for Establishment Registration, some importers have asked me to clarify whether they need to register each and every facility that receives goods. For example, the importer may have a head office in Chicago and satellite distribution offices in Seattle, Oakland, Los Angeles, Dallas, Chicago, New York and Miami. If each satellite office had to register as a distinct Establishment, the importer would potentially have to pay the registration fee ($2575 starting October 1, 2012) SEVEN times. If the importer has even more offices throughout the United States, the registration costs could end up being quite onerous.
I contacted FDA’s Establishment Registration email address (they responded surprisingly quickly) and was initially told that yes, each facility would need to register for a separate Establishment number. I then asked how an importer should declare their Establishment for a shipment that was sent on a “direct-ship-to-customer model” where a shipment bypasses the importer’s distribution warehouses entirely. As the importing community is well aware, one of the best ways to reduce cost is to be able to directly ship goods from the manufacturer to the end customer, thereby reducing warehousing costs along the way. This question stumped the FDA Registration clerks. The question was elevated, and I received a very quick response from someone higher up in FDA. They clarified the following:
- If the importer has one head office and multiple branch offices that receive goods, they only need to register the Establishment of the head office.
- The shipping documents at the time of import should clearly indicate the head office’s name with Establishment registration information clearly listed on the paperwork.
- The shipping documents can then indicate a delivery address that is different from the head office that has the Establishment registration.
This information was of great relief to my importers of medical devices. I would like to applaud FDA and their quick response to my questions.
Feel free to contact me if you have any questions.
As I mentioned in a previous blog, FDA is updating their requirements for Medical Device Establishment Registration and Listings. The changes begin in four days, starting October 1, 2012. The two biggest changes that I initially noted were as follows:
- ALL establishments (including initial distributors / initial importers) will need to start paying the registration fee. In the past, initial distributors/importers were exempt from paying the registration fee.
- The registration fee will be increasing from $2029 to $2575.
One thing I forgot to make note of was another new requirement for initial distributors/importers. They must now “Identify manufacturers of products being imported. This may be done by listing number or searching and identifying the manufacturer in FURLS.”
The official response from FDA’s FAQ page on the new requirements has this blurb about identifying the manufacturer:
16. As an initial distributor/importer who is now required to provide the manufacturer information for devices I will be importing, must I update this information in FURLS as new firms are added or I decide not to distribute for a particular manufacturer?
FDA recommends that importers keep their manufacturer information current at all times. Failure to keep your information current may lead to your device undergoing manual review when imported, which may slow importation of your device.
We all know how bogged down and slow FDA’s response has become over the last few years. Most FDA offices are way underfunded and overworked. One thing that FDA continues to repeat to the importing community is that the best way to help them speed up the process is by making sure all the information provided to them is up-to-date. Keeping manufacturer information up to date on FURLS is just one such action that every importer should be taking.
This is an important update for all importers who have registered Medical Device Establishments with the FDA. Owners or operators of businesses that are involved in the production and distribution of medical devices intended for use in the United States are required to register their establishment with FDA on an annual basis. FDA has made two changes for their fiscal year 2013 (actually begins October 1, 2012).
1.) The biggest change has to do with whom is required to pay the fee. In the past, initial distributors / importers in the United States were required to register, but were not required to pay the registration fee. As of October 1, 2012, this will no longer be the case. ALL establishments, both domestic and foreign, will be required to pay the annual registration user fee.
2.) The registration user fee is increasing from $2029 (FY 2012) to $2575 (FY2013).
Additional information can be found on the following FDA website: http://www.fda.gov/MedicalDevices/ResourcesforYou/Industry/ucm314844.htm
Please be aware of these important changes as the Establishment Registration must be kept up to date in order to help ensure a smooth FDA review process.