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The Health Care and Education Reconciliation Act of 2010--signed into law in May--has caused concern among laboratory owners wondering if the 2.3% excise tax on medical devices applies to dental restorations. At the heart of the confusion is the vague terminology in the legislation which says the 2.3% tax applies to the selling price of medical devices and is payable by the "manufacturer, producer or importer" of the device but doesn't specifically define who qualifies as a manufacturer, producer or importer.
To address these concerns, the NADL Executive Board worked with its Washington D.C.-based law firm, Reed Smith, LLP, to scrutinize the Act and has concluded that it does apply to dental laboratories. "Our legal analysis is that, as written, the legislation will apply to dental laboratories, given the FDA's previous classification of dental laboratories as medical device manufacturers," says Bennett Napier, CAE, NADL co-executive director.
Here's a closer look at the results of the NADL's analysis:
- All dental laboratories will be required to pay a 2.3% tax on their annual sales of restorations and appliances starting in 2013. Within the next two years, the IRS will develop regulations for the collection, reporting and submission of the tax.
- The tax applies to the finished device rather than components. For example, if Laboratory A outsources a partial framework to Laboratory B, there would be no tax due on the transaction. The tax only applies when Laboratory A delivers the final case to the prescribing dentist.
- For imported restorations, the importer--meaning the U.S. agent for the foreign laboratory, or the domestic laboratory or dental practice that sent it directly overseas--is responsible for the tax.
- Restorations fabricated in the dental office are also subject to the excise tax. "In essence, dentists using chairside milling systems would be defined as a manufacturer of those finished restorations created in their practice setting," says Napier.
The NADL is currently exploring legislative or regulatory approaches to exempting dental laboratories from the legislation. For instance, it met with the ADA in May and discussed the possibility of joint lobbying efforts. "The NADL and the dental laboratory industry are one of many groups that may be seeking an exemption," says Napier. "It will be a long and potentially expensive journey to see if it's politically feasible."
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Hereâs the latest news on the medical device tax (put forth by the Health Care and Education Reconciliation...See more Act of 2010) that will require laboratory owners to pay a 2.3% tax on their annual sales of restorations and appliances starting in 2013. In February, the IRS released a âProposed Ruleâ document that offers a more detailed definition of taxable medical devices and specifically states, âThere is no statutory basis for treating dental devices differently from other taxable medical devices.â Last year, the NADL, ADA and Dental Trade Alliance had sent a joint letter to the IRS requesting that dental devices be exempted from the excise tax, but the request was denied. The IRS document also announces a public hearing on the medical device tax on May 16 and it invites comments âon the clarity of the proposed regulations and how they may be made easier to understandâ by May 7. Visit www.regulations.gov and search for âtaxable medical devices.â — tagged Medical Device and Excise Tax