New Medical Device Contract Manufacturers Excise Tax Requirements

M

MantleMickey

#1
I don't know how many other medical device contract manufacturers are out there, but I am confused, and wondered if anyone else is going through the same thing as I.
I think I understand now as a contract manufacturer of medical devices, class 2, I will need to register and list, which is new, and pay $2,500.
My confusion now: Manufacturers Excise Tax.
As a contract manufacturer, do I pay this tax or our customer??
We make per their print, ship parts to them un-sterile.
Any thoughts are appreciated.
MM
:confused:
 
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M

MIREGMGR

#2
Re: HELP! New Contract Mfg. requirements

The physical maker of the medical device pays the tax, except if:
  • All of your production is shipped outside USA (by you, not your customer), in which case no tax is due but you still have to document the situation and prove it to the tax collectors.
  • Or, as above but the shipment outside USA is by your customer, in which case you can get a rebate for the tax you had to pay, but only if your customer provides you with documentation and only if you can prove that you didn't raise your prices to offset the impact of the tax.
  • The Specification Developer has a patent on the device design, in which case maybe they pay and not you, or maybe not. You'll need documentation from your customer.
  • The item you produce is used in further manufacturing to arrive at a finished medical device, and you can prove that fact and that the further use is within 6 months of your shipment date for each unit, in which case maybe the further manufacturer pays and not you, or maybe not. You'll need documentation from your customer.
In your case, you say further sterilization is (sometimes?) done. I don't know if sterilization counts as a further manufacturing operation, or not. I've heard both ways.
 
M

MantleMickey

#3
Re: HELP! New Contract Mfg. requirements

Thanks for the input. I am still waiting on our customers to
provide some guidance on listing products. All of these new regs
are going to take time and more $
It is confusing on what a manufacturer is. Yes, We make the part,
but it is per customer spec. I hope the IRS has some guidance for
us small manufacturers to follow.
:thanks:
 
J

jahabba613

#4
Re: HELP! New Contract Mfg. requirements

The physical maker of the medical device pays the tax, except if:
  • All of your production is shipped outside USA (by you, not your customer), in which case no tax is due but you still have to document the situation and prove it to the tax collectors.
  • Or, as above but the shipment outside USA is by your customer, in which case you can get a rebate for the tax you had to pay, but only if your customer provides you with documentation and only if you can prove that you didn't raise your prices to offset the impact of the tax.
  • The Specification Developer has a patent on the device design, in which case maybe they pay and not you, or maybe not. You'll need documentation from your customer.
  • The item you produce is used in further manufacturing to arrive at a finished medical device, and you can prove that fact and that the further use is within 6 months of your shipment date for each unit, in which case maybe the further manufacturer pays and not you, or maybe not. You'll need documentation from your customer.
In your case, you say further sterilization is (sometimes?) done. I don't know if sterilization counts as a further manufacturing operation, or not. I've heard both ways.
MIRGMGR: You appear to have clarity beyond most that I have spoken to regarding the Medical Device Excise Tax. As the original post our company is still tripping on what constitutes "further manufacturing" and whether we can apply this exemption to private labelers of our software.

We manufacture a class II medical device software which integrates with radiological systems such as sensors, panoramic systems etc. Our distribution occurs on 3 levels:

1. We sell our software & licensing directly to the user
2. We sell our software & licensing to vendors that "bundle" our software with other medical device hardware.
3. We are contracted to private label our software with an OEMs branding and default setting requirements. these OEMs in turn bundle the private-label software with their medical device hardware.
4. We are contracted to private label our software with a vendor's branding, our defualt settings. the vendor then "bundles" their private labeled software with other medical device hardware.

I'm clear with scenario's 1 and 2 but the third one has us and our accountants thrown for a loop. Do scenario's 3 and/or 4 meant the definition of further manufacturing?

Appreciate your input.
 
S

sandiego

#5
We are interpreting is as follow:
The name of the company that appears on the finished product is responsible for the tax. Contract manufacture must register as a contract manufacture and list the device using the customer?s 510K number. Keep in mind the tax must be paid every 14 days, not quarterly as other taxes.
:cfingers:
 
M

MIREGMGR

#6
Re: HELP! New Contract Mfg. requirements

I'm clear with scenario's 1 and 2 but the third one has us and our accountants thrown for a loop. Do scenario's 3 and/or 4 meant the definition of further manufacturing?

Appreciate your input.
I can't help regarding software. I don't have any software-as-device experience, and don't fully understand the software-as-device rules.
 
M

MIREGMGR

#7
The name of the company that appears on the finished product is responsible for the tax.
That's not consistent with my understanding. To the best of my knowledge, IRS's assignment of MDET responsibility does not follow FDA regulatory responsibility in a specification-provider/contract-manufacturer sense, and never goes to a distributor in a private labeling context. Rather, IRS looks at the physical maker, if within USA.
 
J

jahabba613

#8
That's not consistent with my understanding. To the best of my knowledge, IRS's assignment of MDET responsibility does not follow FDA regulatory responsibility in a specification-provider/contract-manufacturer sense, and never goes to a distributor in a private labeling context. Rather, IRS looks at the physical maker, if within USA.
Isn't the private labeler considered to be the "further manufacturer" in these scenarios?
 
M

MIREGMGR

#9
Isn't the private labeler considered to be the "further manufacturer" in these scenarios?
My understanding is that for MDET purposes, the IRS defines manufacturing as (paraphrasing) physical combinative or transformative activity, as opposed to directive or specification responsibility for such activity that is physically carried out by someone else.

Thus in most cases when an FDA Specification Provider engages an FDA Contract Manufacturer to make devices, the Contract Manufacturer will be the MDET responsible party.

The term "private label" has different meanings under FDA and European regulations. An FDA private label distributor will not have MDET responsibility because the actual maker (and applier of labeling carrying the private label distributor's identity) of those products is another party, and the private label distributor conducts no physical manufacturing activities. Instead the actual maker of the products would have MDET responsibility.
 
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