Healthcare Technology Featured Article

December 07, 2012

IRS Releases Rules for Medical Device Tax

As part of President Barack Obama’s 2010 healthcare law, the U.S. Internal Revenue Service (IRS) has officially released finalized rules for a new tax on medical devices.

The details came out on Wednesday, outlining exactly which products will fall under the new rule, including surgical sutures, knee replacement implants, pacemakers, and even tongue depressors.

As per the new rules, medical device-makers are required to pay a tax of 2.3 percent on their gross sales, which will go into effect at the start of the New Year.

This means that until January 1, 2013, companies wishing to repeal the tax, including 3M Co, Boston Scientific Corp, and Kimberly-Clark Corp will be lobbying even more than they have already been. 

Image via Shutterstock

In June the repeal bill did pass in the Republican-controlled U.S. House of Representatives, but it has not been voted on by the Democratic-controlled Senate. Most likely the new tax rules are here to stay.

“The excise tax is on the medical device manufacturers and importers [who] will now have access to 30 million new customers due to the health care law,” explained Sabrina Siddiqui, spokeswoman for the Treasury Department.

The new tax is expected to raise a staggering $29 billion in government revenue in the next decade.

One potential issue with the tax is that companies selling dual-use products to both medical and non-medical customers are expected to pay the tax, which has angered those companies--some say this puts them at a competitive disadvantage.

For instance, latex gloves may or may not fall under the tax’s specifications--for now, according to the IRS, it is “an open question.”

Another caveat of the tax is that medical devices sold over the counter, including contact lenses, hearing aids and prosthetics, are exempt from the tax, while products sold for humanitarian reasons are not exempt.

Such products would include experimental cancer treatments, as they are used and implanted by medical professionals.

For the companies against the tax, some are hoping to use the “fiscal cliff” as a reason to delay the tax’s starting date further into 2013.

Steve Ferguson, chairman of Cook Group Inc, commented on extending the current tax policy into 2013, saying “We would like to be part of the punt.”

Though it may change in the future, for now, the tax will stand as it has been outlined by the IRS.

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