The Truth about the Medical Device Tax and Your Laboratory
The Truth about the Medical Device Tax and Your Laboratory
As more members of the dental laboratory technology profession are discovering that the Medical Device Tax (MDT) will be taking effect on Jan. 1, 2013, there has been considerable discussion on several of the Internet forums. Unfortunately, there are several misperceptions out there likely based on misinformation.
Many NADL members will have already received some of this information since articles were published in the JDT Unbound starting in June of 2010 and most recently in the July and August 2012 editions of the JDT Unbound. Other articles are in our print publication, the JDT.
NADL members will also be receiving detailed practical information from NADL as the IRS adopts a final rule this fall (currently only a proposed rule has been published). However, in the meantime, the following may help provide some basic information, clear up a couple of the most common myths and show some of what has and is being done.
Medical Device Excise – The Facts
Effective Jan. 1, 2013, dental laboratories will be responsible for collecting and remitting a 2.3 percent excise tax on sales of finished devices.
Dental laboratories will have to use Form 720 which is available at www.irs.gov to report and pay the tax. This form has to be filed quarterly and then a final Form 720 is submitted at the end of each year.
Typically with excise taxes businesses must use electronic funds transfer to make excise tax deposits. This can be done using the Electronic Federal Tax Payment System (www.irs.gov/efile) or same day wire transfers can be made from banking institutions.
The quarterly filings dates are April 30, July 31, October 31 and January 31.
Excise taxes filed and deposited must be at least 95 percent of the net tax liability for the quarter. If your dental laboratory has an accountant or bookkeeper please make sure they are aware of this new tax.
Medical Device Excise – Myths
Myth: Because it is a tax on all manufactures of medical devices, the tax adds up multiple times by the time we finish the device and bill it out.
Fact: Not correct. You will find that the proposed rule states that tax free sales include: "Sales for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by such second purchaser in further manufacture." See the top left corner of page 6029 of Federal Register /Vol. 77, No. 25 /Tuesday, February 7, 2012 / Proposed Rules. http://www.gpo.gov/fdsys/pkg/FR-2012-02-07/pdf/2012-2493.pdf
Myth: You cannot line item and list tax on the invoice.
Fact: You may line item or itemize the tax or not as you chose. The IRS proposed rule states: "However, the taxable sale price excludes (i) the manufacturers excise tax, whether or not it is stated as a separate charge." See Sale Price at page 6032 of the Proposed Rule. http://www.gpo.gov/fdsys/pkg/FR-2012-02-07/pdf/2012-2493.pdf
For the IRS FAQs see: http://www.irs.gov/uac/Medical-Device-Excise-Tax:-Frequently-Asked-Questions
What NADL is Doing
In the spring of 2011, NADL and ADA submitted policy arguments that dental devices not be included in the administrative rule related to the medical device tax. The IRS denied the request.
In May of 2012, NADL joined with the American Dental Association and nearly a dozen other allied dental organization and submitted formal comment to the Internal Revenue Service arguing that the administrative rule should exempt dental devices from the medical device tax.
The IRS held a public hearing in Washington D.C. in mid-May 2012 and the NADL's formal submission on exempting dental devices was denied.
In June 2012, the U.S. House of Representatives passed House Resolution H.R. 436, which would repeal the medical device excise tax, by a vote of 270-146. The U.S. Senate has not taken up the bill. Due to the party breakdown of the Senate and the Senate rules, it does not appear that there are enough votes to force a hearing of the bill in the Senate. Unfortunately, even if the Senate were to pass the bill repealing the Medical Device Tax, President Obama has indicated he would veto the repeal.
NADL continues to advocate for the exemption of dental devices from the MDT.
It is good to see that many laboratory owners and technicians are now recognizing the importance of being engaged. Becoming an NADL Member can offer you a direct resource to turn to when you have questions. There has never been a more important time to join your professional association. For example, are you aware of the new FDA rules and fees that take effect on October 1, 2012? If not, you may want to look at the following article:
There is a lot happening out there. It's going to happen whether you know about it or not. Joining NADL is a great way to stay informed on how your business and your profession will be impacted. Join today at http://www.nadl.org/joinonline.cfm.
These are the steps a lab must should follow between now and January 1, 2013:
- Register on the IRS electronic efile system (http://www.irs.gov/Filing )
- Update lab PO with statement that “articles are being purchased for further manufacture” and list 637 registration # on PO
- Set up method to track the sales price internally (ie back out transport cost and any other carve outs – some still being determined)
- File form 637 for tax free sales (form not updated yet) http://www.irs.gov/pub/irs-pdf/f637.pdf
- File quarterly return IRS Form 720 (form not updated yet)- due dates are April 30, July 31, October 31 and January 31. http://www.irs.gov/pub/irs-pdf/f720.pdf
- Unknown yet whether labs will have to make bi-monthly deposits or whether tax will be remitted quarterly with the Form 720.
As you can see the forms aren’t updated yet and the IRS hasn’t assigned an activity code for the MDT yet so labs that want to get a jump could start working on the first three from the list. Hopefully the IRS will finalize the rule and update the forms in October.