The Treasury Department released the final rule for the medical device excise tax, confirming that prosthetic and orthotic devices qualify for exemption from the 2.3% medical device tax under the retail exemption provided in the Affordable Care Act.
Under a safe harbor provision, the IRS and Treasury Department identified certain categories of medical devices that fall within the retail exemption. This safe harbor includes prosthetic and orthotic devices defined in 42 CFR 414.202, that do not require implantation or insertion by a medical professional, and therapeutic shoes as described in 42 CFR 414.228(c).
According to the American Orthotic and Prosthetic Association (AOPA) website, “This is not a universal exemption of any manufacturer’s entire product line — it really depends on whether the component goes into a finished O&P device that qualifies for exemption. If every component a company makes is used in an exempt device, then all those products would be exempt from the tax. Other manufacturers may sell some components that meet the criteria for the retail exemption and other products — e.g., non-O&P devices — that do not qualify for exemption. They will have to pay tax on the latter products, but not as to the former ones.”
Manufacturers whose products are exempt from the tax will need to file a Consolidated Form 637 registration to effectuate tax-free sales, according to the AOPA website. This registration does not expire.