There has been a great deal of concern in the dental community about the effect of the Medical Device Tax. This new excise tax is part of the Health Care and Education Reconciliation Act of 2012, which will force manufacturers and importers of medical devices to pay a tax of 2.3% of gross sales of certain medical devices. On December 7th, the IRS published its final rules on the new tax –IRS New Taxes, finalized the definition of “taxable medical device” and clarified exemptions. The picture of how this new tax will affect the dental community is now a bit clearer.
What is a “Medical Device” for tax purposes?
The IRS left the definition of a medical device up to the FDA. The key to taxation is registration with the FDA. All manufacturers, producers, and importers of medical devices must register with the FDA and submit a list of the medical devices that they manufacture, produce, or import. These “listed” medical devices are identified as “taxable medical devices” and are subject to the new 2.3% tax.
Dentists and other licensed practitioners who prescribe or administer devices, and who manufacture these devices solely for use in the course of their professional practice are not required to register with the FDA and are thus exempt from the tax, meaning dentist will not be responsible for collecting, reporting, or paying the new 2.3% tax. Many of the products purchased and used by dentists, however, will be taxable, including restorative materials, hand instruments, surgical instruments, and endodontic filling materials.
Dental laboratories are also generally exempt from registering with the FDA, unless they import, and their domestically made crowns, bridges, dentures, veneers and retainers will not be subject to the tax. The materials they use, however, will be taxable, including alloys, ceramic, resins, stock abutments, and individual denture teeth.
Which Medical Devices are excluded?
The new tax allows a “retail exemption” of many medical devices. Any device on the FDA list with the letters “OTC” (over the counter) in front of its name is clearly excluded from the tax. Additionally, the safe harbor retail exemption applies to any device commonly purchased by the general public at retail stores for individual use. The IRS provides several example cases of applying their “facts and circumstances” approach to determine if a device qualifies for the retail exemption. They explain why items such as cotton tip applicators and adhesive bandages are exempt and the same logic can be applied to power toothbrushes, manual toothbrushes, oral rinses, denture adhesives and cleaners, and many other items used in a dental practice.
Who will pay the Medical Device tax?
After analyzing the new law, the ADA estimates that there are approximately 130 taxable medical devices used in a typical dental practice. While the tax will be payable by manufacturers and importers of taxable devices, it will also result in some increased costs for dental labs, dentists, and patients. Indirectly, we will all pay this tax.
Industry groups have urged Congress to repeal or delay implementation of the tax, arguing that it could cost jobs and stifle innovation. The tax is estimated to collect $29 billion over 10 years from the medical device industry.
Act now, purchase your medical and dental devices at Net32.com