Federal Excise Tax on Medical Devices is Part of the Sales Price

A new federal excise tax on medical devices equal to 2.3 percent of the sales price on sales of certain devices begins Jan. 1, 2013. The tax is imposed on manufacturers, producers and importers, not on their customers.

A seller may pass along the expense of the new tax to customers by separately stating a line item charge on the invoice or receipt given to their customers for “Federal Excise Tax” or something similar. A seller cannot characterize such a pass-through or reimbursement as a tax or fee imposed on the purchaser.

The Texas Tax Code requires that any money represented as and collected by a seller as a “tax” or “fee” be remitted to the state in full. So, if a seller characterizes reimbursements for the federal excise tax as a tax or fee imposed on its customers (the purchaser), the Comptroller’s office will regard such charges as tax collected in error. “Error tax” must either be refunded to customers or remitted to the state. See STAR document 201008851L for additional guidance regarding line item charges and sales tax.

If Texas sales tax is due on a medical device when it is sold, an excise tax reimbursement charge included with the billing is part of the sales price and also taxable. If a medical device is exempt from sales tax, the associated medical device tax reimbursement charge is exempt from sales tax.

For more information on the taxability of medical devices in Texas, please see Rule 3.284, Drugs, Medicines, Medical Equipment, and Devices. The federal law that imposed the tax is the Health Care and Education Reconciliation Act of 2010 (Health Care Act), P.L. 111-152.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1211.html#issue4.