Impact of Medical Excise Tax on Dentistry
As of January 1, a new 2.3 percent federal excise tax went into effect. The medical device excise tax, which is part of the Affordable Care Act, is raising numerous questions from dentists nationwide. Based on current information obtained by the American Dental Association (ADA), here are a few points that can help dentists, their staff and patients understand the tax:
- Dentists will not be responsible for collecting,
reporting or paying the 2.3 percent tax. Dentists will not be considered
“manufacturers” of dental devices merely because they
perform restorations or assemble and adjust prosthetic devices.
- The tax on “devices” specific to dentistry will,
in many cases, be applied to the materials that dental devices are
manufactured from, rather than to the items supplied by a dental
laboratory, regardless of whether or not a device is adjusted and
adapted by the dentist for a patient.
- The tax will result
in some increased costs for dentists and patients.
- Dentists should review manufacturer and vendor price lists and invoices to insure that the 2.3 percent tax is not being applied as a general cost increase for all items, but is only applied to devices as required by law. There are 130 items that appear on the Food and Drug Administration’s (FDA) list of dental devices. A compiled list is available on ADA’s website.
FDA regulations do not create a carve-out for dental devices. Dental Devices subject to the 2.3 percent tax are listed by the FDA in the Code of Federal Regulations at 21 CFR 872- DENTAL DEVICES. The FDA list places dental devices into Class 1, Class II, or Class III. ADA has a compiled list that includes any item designated as a “Dental Device” by the FDA, as well as the devices FDA subcategory. All devices listed are subject to the excise tax unless they fall under an exclusion.
A major exclusion from the tax is provided by the “retail exemption.” Items that are available “over the counter” are not subject to the medical excise tax, even if they appear on the FDA’s list. Devices that apply to the “retail exemption” are noted on the FDA’s list with the letters “OTC” in from of the devices name.
It is safe to assume that other devices, such as power and manual toothbrushes, dental floss and teething rings are not subject to the tax. The Internal Revenue Service (IRS) itself may not be sure what products fall under the “retail exemption.” The IRS has said that it will take a “facts and circumstances” approach to determining whether or not the retail exemption should apply in particular cases.
The first device excise tax deposit from manufacturers was due January 29, however the IRS offered temporary relief to device manufacturers from timely deposits for the first three calendar quarters of 2013 in consideration of the time frame between the effective date and the first deposit due date.
Dentists may have received letters from dental laboratories attempting to explain the tax and its implementation. At this point, there may be some difference of opinion as to how the tax will work, but it is important to keep in mind that dental labs and supply companies will likely pass the tax along to their customers. ADA plans to reach out to vendors in order come to a consensus on how the tax should be applied and collected.
ADA has urged Congress to repeal the
medical excise tax and will continue to track information on its
<< Affordable Care Act homepage