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Burden of ACA Medical Device Tax Clearly on Manufacturers

12/19/13

By: Taryn Kadar
With the Affordable Care Act (“ACA”) imposing new taxes on the sale of medical devices, the Northern District of Georgia addressed an important question regarding who bears the responsibility of a new 2.3 percent tax on all medical devices, the manufacturer or the distributor. In Chemence Medical Products, Inc. v. Medline Industries, Inc., the district court found that the language of the ACA clearly imposes the tax on manufacturers, producers or importers, but not on a distributers, retailers or consumers. The court found that Chemence, a medical manufacturer, could not pass along the charge of the tax to its distributer, Medline Industries.
The court made note that this situation regarding who bears the burden to pay the medical device tax, could easily be avoided through contractual language. In this case, the contract between the two parties was made in 2010, before it was clear what the ramifications and burdens of the ACA would be. While parties can agree by contract to shift the cost of the tax to the distributer, the contract here did not contain such an agreement.
For those medical device manufacturers who are still operating under contracts entered into before the ACA medical device tax took place, this case should be a wake-up call in that the manufacturer will ultimately bear the primarily responsibility for the tax absent a contractual agreement otherwise.