# Prop. Treas. Reg. § 47.5000D-2: Definitions. Proposed regulation, not in force. REG-115559-23, 90 FR 31, published 2025-01-02 . Interprets 26 U.S.C. § 5000D. Par. 3. Sections 47.5000D-2 and 47.5000D-3 are added to read as follows: (a) Overview. This section provides definitions for purposes of section 5000D of the Internal Revenue Code (Code) and the Designated Drugs Excise Tax Regulations in this part. (b) Definitions —(1) Applicable percentage. The term applicable percentage has the meaning provided in section 5000D(d). To determine the applicable percentage with respect to a specific applicable sale, days described in section 5000D(b) are cumulative regardless of whether such days are consecutive. (2) Applicable sale. The term applicable sale means the sale transaction that is the subset of each sale in units of a designated drug, as defined in section 5000D(e)(1), made by the manufacturer, producer, or importer that will be dispensed, furnished, or administered to maximum fair price-eligible individuals, as defined in section 1191(c)(2) of the Social Security Act (42 U.S.C. 1320f(c)(2)) and any regulations (in title 42 of the Code of Federal Regulations) or guidance issued thereunder by the Secretary of Health and Human Services. See § 47.5000D-3(a)(4) for methods of identifying applicable sales. (3) Manufacturer, producer, or importer —(i) In general. With respect to any units of a designated drug, the term manufacturer, producer, or importer means the person that makes the first sale of such units or, in the case of imports, the person that makes the first sale of such units after such units are entered into the United States for consumption, use, or warehousing. A sale is the first sale if it precedes in time any other sale of the same units. Each unit of a designated drug, therefore, has only one manufacturer, producer, or importer. (ii) Sale made other than on a day described in section 5000D(b). A person that meets the criteria of paragraph (b)(3)(i) of this section is a manufacturer, producer, or importer regardless of whether the sale described in paragraph (b)(3)(i) is made during a day described in section 5000D(b). See Example 2 provided in paragraph (c)(2) of this section. (iii) Sale made prior to publication of the list of selected drugs under section 1192(a) of the Social Security Act. With respect to particular units of a drug or biological product, if a person would be described in paragraph (b)(3)(i) of this section but for the timing of the publication of the list of selected drugs under section 1192(a) of the Social Security Act, such person will nevertheless be considered the manufacturer, producer, or importer of such units. Subsequent sellers of such units would not, therefore, be the manufacturer, producer, or importer of such units. See Example 3 provided in paragraph (c)(3) of this section. (4) Price —(i) In general. Except as provided in § 47.5000D-3(b)(2)(i) and (ii), the term price means, with respect to an applicable sale of units of a designated drug sold during a day described in section 5000D(b), any amount (whether in cash or in kind) that is required by a manufacturer, producer, or importer to be paid as a condition of such applicable sale. It is immaterial, for purposes of this paragraph (b)(4), that such amount may be paid to a person other than the manufacturer, producer, or importer, or that it may be separately billed to the buyer as an amount earmarked for expenses incurred or to be incurred on such buyer's behalf. (ii) Adjustment to amount charged. A manufacturer, producer, or importer may adjust the amount charged in an applicable sale to reflect a bona fide discount, rebate, or allowance that is connected to such applicable sale and paid or credited by such manufacturer, producer, or importer against such amount. The basic consideration in determining, for purposes of this section, whether a bona fide discount, rebate, or allowance has been made is whether the amount actually paid by, or charged against the account of, the buyer in the applicable sale has been reduced. Such amount will be considered reduced by reason of a bona fide discount, rebate, or allowance only if the manufacturer, producer, or importer repays part or all of the amount charged to the buyer, credits the buyer's account, or reimburses a third party for part or all of the amount charged for the benefit of the buyer. (iii) Amount of adjustment. The amount of any bona fide discount, rebate, or allowance described in paragraph (b)(4)(ii) of this section that may be used to reduce the amount charged for an applicable sale is limited by the percentage of a sale that constitutes such applicable sale. (iv) Allocation between price and tax. The amount described in paragraph (b)(4)(iii) of this section must be allocated between price and the tax imposed by section 5000D(a) (section 5000D tax) in the same manner as the amount charged for the applicable sale absent such adjustment. See Example 6 provided in paragraph (c)(6) of this section. (5) Sale. The term sale means any agreement by which substantial incidents of ownership in units of a designated drug serve as consideration. (c) Examples. The following examples illustrate the application of the definitions provided in this section and the rules provided in § 47.5000D-3. For purposes of this paragraph (c), all sales are applicable sales ( see paragraph (b)(2) of this section and § 47.5000D-3(a)(4)) and, unless otherwise provided, all designated drugs are manufactured or produced in the United States. (1) Example 1: First sale of units of a designated drug —(i) Facts. Manufacturer D is a manufacturer of Designated Drug Y. During the fourth quarter of 2024, Manufacturer D sells 1,000,000 units of Designated Drug Y to Wholesaler E, a drug wholesaler. With respect to Designated Drug Y, every day of the fourth quarter of 2024 is a day described in section 5000D(b). (ii) Analysis. Manufacturer D incurs liability under section 5000D(a) and § 47.5000D-3(a) for its sale of the 1,000,000 units of Designated Drug Y to Wholesaler E. No other person incurs liability under section 5000D(a) and § 47.5000D-3(a) with respect to those units. Under paragraph (b)(3)(i) of this section, Manufacturer D's sale of the 1,000,000 units of Designated Drug Y to Wholesaler E is the first sale of such units of the designated drug. As a result, Manufacturer D is the manufacturer, producer, or importer with respect to such units of Designated Drug Y. Because Manufacturer D's sale of the 1,000,000 units of Designated Drug Y is made during a day described in section 5000D(b), that sale is subject to taxation under section 5000D(a) and § 47.5000D-3(a). No tax liability under section 5000D arises with respect to any subsequent sale of the 1,000,000 units of Designated Drug Y because no subsequent sale would qualify as the first sale of such units; therefore, no other person is the manufacturer, producer, or importer with respect to such units. (2) Example 2: Manufacturer sale prior to day described in section 5000D(b) —(i) Facts. The facts are the same as those described in paragraph (c)(1)(i) of this section ( Example 1 ), except that Manufacturer D's sale of the 1,000,000 units of Designated Drug Y is made after it is included on the list published under section 1192(a) of the Social Security Act, but before a day described in section 5000D(b). (ii) Analysis. Manufacturer D incurs no liability under section 5000D(a) and § 47.5000D-3(a) for its sale of the 1,000,000 units of Designated Drug Y to Wholesaler E. In addition, no other person incurs liability under section 5000D(a) and § 47.5000D-3(a) with respect to those units. Under paragraph (b)(3)(i) of this section, Manufacturer D's sale of the 1,000,000 units of Designated Drug Y to Wholesaler E is the first sale of such units of the designated drug. As a result, Manufacturer D is the manufacturer, producer, or importer with respect to such units of Designated Drug Y. No tax liability under section 5000D, however, arises in relation to that sale because it was not made during a day described in section 5000D(b). Moreover, no tax liability under section 5000D arises with respect to any subsequent sale of the 1,000,000 units of Designated Drug Y because no subsequent sale would qualify as the first sale of such units, and therefore no other person is the manufacturer, producer, or importer with respect to such units. (3) Example 3: Sale made prior to publication of the list of selected drugs —(i) Facts. Manufacturer B, a drug manufacturer, sells 1,000,000 units of Drug J to Wholesaler V, a drug wholesaler. After such sale and before Wholesaler V resells those 1,000,000 units, Drug J is identified as a selected drug on the list published under section 1192(a) of the Social Security Act, making it a designated drug (Designated Drug J), as defined in section 5000D(e)(1). Wholesaler V subsequently sells the 1,000,000 units of Designated Drug J to pharmacies; these sales occur on a day described in section 5000D(b). (ii) Analysis. Manufacturer B incurs no liability under section 5000D(a) and § 47.5000D-3(a) for its sale of the 1,000,000 units of Designated Drug J to Wholesaler V. In addition, no other person incurs liability under section 5000D(a) and § 47.5000D-3(a) with respect to those units. At the time of Manufacturer B's sale to Wholesaler V, Drug J had not been included on the list of selected drugs published under section 1192(a) of the Social Security Act and, therefore, was not a designated drug as defined in section 5000D(e)(1). Under paragraph (b)(3)(iii) of this section, Manufacturer B would nevertheless be considered the manufacturer, producer, or importer with respect to the sale to Wholesaler V. No tax liability under section 5000D(a) and § 47.5000D-3(a) would arise with respect to Manufacturer B's sale because that sale did not occur (and could not have occurred) during a day described in section 5000D(b). Moreover, no tax liability under section 5000D would arise with respect to Wholesaler V's sale of the 1,000,000 units of Designated Drug J, even though such sale occurred during a day described in section 5000D(b), because, as a function of the rule provided in paragraph (b)(3)(iii) of this section, Wholesaler V did not make the first sale of such units. Wholesaler V is not, therefore, the manufacturer, producer, or importer under paragraph (b)(3)(i) of this section with respect to such units of Designated Drug J, and is not subject to tax under section 5000D and § 47.5000D-3(a). (4) Example 4: Subsequent sale to relabeler —(i) Facts. The facts are the same as those described in paragraph (c)(1)(i) of this section ( Example 1 ), except that during the fourth quarter of 2024, Wholesaler E sells the same 1,000,000 units to Relabeler F, a drug relabeler. Relabeler F then relabels the 1,000,000 units of Designated Drug Y and, before the end of the fourth quarter of 2024, sells all 1,000,000 units to pharmacies. (ii) Analysis. Manufacturer D incurs liability under section 5000D(a) and § 47.5000D-3(a) for its sale of the 1,000,000 units of Designated Drug Y to Wholesaler E. No other person incurs liability under section 5000D(a) and § 47.5000D-3(a) with respect to those units. Relabeler F's relabeling of the 1,000,000 units of Designated Drug Y does not affect this outcome, regardless of whether such relabeling involves affixing a new National Drug Code or Codes to the units of Designated Drug Y prior to those units of Designated Drug Y being furnished to a maximum fair price-eligible individual. Relabeler F's sales of the 1,000,000 units of Designated Drug Y to pharmacies are the third sales of such units, not the first. As a result, Manufacturer D is the manufacturer, producer, or importer with respect to such units under paragraph (b)(3)(i) of this section, not Relabeler F. Thus, Relabeler F's sale of such units is not subject to taxation under section 5000D(a) and § 47.5000D-3(a), but Manufacturer D's sale of such units to Wholesaler E is subject to the tax. (5) Example 5: Importation —(i) Facts. With respect to Designated Drug Y, every day of the fourth quarter of 2024 is a day described in section 5000D(b). Manufacturer R is a manufacturer of Drug Y. During the fourth quarter of 2024, Manufacturer R sells 1,000,000 units of Drug Y to Wholesaler Q, a drug wholesaler, before such units are entered into the United States for consumption, use, or warehousing. Before the end of the fourth quarter of 2024, Wholesaler Q enters the 1,000,000 units of Drug Y into the United States for consumption, use or warehousing, rendering them units of a designated drug (Designated Drug Y), as defined in section 5000D(e)(1), and sells all 1,000,000 units to pharmacies. (ii) Analysis. Wholesaler Q incurs liability under section 5000D(a) and § 47.5000D-3(a) for its sale of the 1,000,000 units of Designated Drug Y to the pharmacies. No other person incurs liability under section 5000D(a) and § 47.5000D-3(a) with respect to those units. Under paragraph (b)(3)(i) of this section, Manufacturer R is not the manufacturer, producer, or importer with respect to the 1,000,000 units of Drug Y that Manufacturer R sold to Wholesaler Q during the fourth quarter of 2024 because Manufacturer R's sale occurred before such units were entered into the United States for consumption, use, or warehousing. As a result, Manufacturer R's sale to Wholesaler Q is not subject to taxation under section 5000D(a) and § 47.5000D-3(a). Wholesaler Q's sales of the same 1,000,000 units of Designated Drug Y to pharmacies in the fourth quarter of 2024, however, are subject to taxation under section 5000D(a) and § 47.5000D-3(a). Wholesaler Q's sales to such pharmacies are the first sales of those units after they were entered into the United States for consumption, use, or warehousing. As a result, Wholesaler Q is the manufacturer, producer, or importer under paragraph (b)(3)(i) of this section with respect to such units of Designated Drug Y, and its sales thereof are subject to taxation under section 5000D(a) and § 47.5000D-3(a). (6) Example 6: Chargeback reimbursement and allocation —(i) Facts —(A) Manufacturer sale. Manufacturer P is the manufacturer, producer, or importer of 100,000 units of Designated Drug Q. During a day described in section 5000D(b), and no more than 90 days since the first such day, Manufacturer P sells 100,000 units of Designated Drug Q to Wholesaler V at $1.00 per unit ($100,000). Manufacturer P reasonably determines that 40 percent of the sale is the applicable sale. See paragraph (b)(2) of this section and § 47.5000D-3(a)(4). Manufacturer P does not separately invoice any section 5000D tax to Wholesaler V. See § 47.5000D-3(b)(2)(i). Manufacturer P's sale to Wholesaler V would, therefore, have resulted in a section 5000D tax liability of $26,000 ($26,000 ÷ $40,000 = 65 percent). (B) Wholesaler sale and chargeback. Pharmacy G purchases the 100,000 units of Designated Drug Q from Wholesaler V at a discount. Wholesaler V issues a $30,000 chargeback invoice to Manufacturer P related to the amount of the discount. Manufacturer P pays Wholesaler V the full amount of the chargeback. (ii) Analysis —(A) Bona fide discount, rebate, or allowance. Manufacturer P's reimbursement for Wholesaler V's chargeback is a bona fide discount, rebate, or allowance against the price of the applicable sale because it is for the sale of the 100,000 units (and no other sale, goods, or services). Of the 100,000 units sold, 40 percent, or 40,000, constitute the applicable sale and are therefore subject to the section 5000D tax. Manufacturer P's reimbursement to Wholesaler V reduces the amount charged in that applicable sale, such that the amount charged per unit is $0.70 and the total amount charged in the applicable sale is $28,000 ($0.70 per unit × 40,000 units). The reimbursement proportionally attributable to the applicable sale is, therefore, $12,000 ($0.30 per unit × 40,000 units). (B) Allocation of chargeback reimbursement between tax and price. ( 1 ) The amount by which the chargeback reimbursement reduces the price and tax, for purposes of section 5000D, is determined by allocating the reimbursement according to the same price-tax ratio that initially applied to the applicable sale: Equation 1 to Paragraph (c)(6)(ii)(B)( 1 ) ( 2 ) The quotient of the tax-inclusive price adjustment ($12,000) and the tax-inclusive sale price (the $40,000 amount charged) multiplied by the initial tax-exclusive sale price of the applicable sale (($1.00−$0.65) × $40,000, or $14,000) results in a price adjustment of $4,200, meaning that, of the $12,000 reimbursement, $7,800 is allocated to tax and $4,200 is allocated to price. Thus, Manufacturer P's liability under section 5000D for the applicable sale is $18,200 (the $26,000 tax liability arising from the sale as originally made less the $7,800 of the reimbursement allocated to the tax). In other words, Manufacturer P's liability under section 5000D after the price adjustment is identical to the liability that Manufacturer P would have incurred under section 5000D had Manufacturer P originally sold the 100,000 units of Designated Drug Q to Wholesaler V at the adjusted amount ($18,200 ÷ $28,000 = 65 percent). (d) Severability. The provisions of this section are separate and severable from one another and any other section in this part. If any provision of this section is stayed or determined to be invalid, it is the intention of the Department of the Treasury and the Internal Revenue Service that the remaining provisions and sections of this part shall continue in effect. (e) Applicability date. This section applies to sales of designated drugs on or after [date of publication of final regulations in the Federal Register ].