For Labs Serving the USA: It's Time to Start Preparing for the Medical Device Tax
Like many others in this industry, we initially thought the medical device tax that will begin January 1, 2013 could be handled in the same manner as sales taxation in QuickBooks. After conferring with the Internal Revenue Service, the NADL and various forums on this topic, we have learned that this is an excise tax that is the responsibility of the manufacturer, not the customer. The standard software mechanisms for handling sales taxation for customers will not be applicable for this.
There have been efforts in Congress and many others to have this tax repealed, but at this point the Affordable Care Act of which this is a part has been confirmed by the U.S. Supreme Court and the tax will likely go into effect on January 1 as planned. Despite efforts on the part of the NADL and others in this industry, dental restorations will be considered medical devices and subject to the tax. To provide software support to tally the correct sales and taxes, we are adding the following to the October release for DentaLab for QuickBooks: 1) In Options/Invoice Settings, you will be able to specify the medical device tax rate. 2) In Basic Lists/Items, you will be able to indicate which items are subject to the tax. Note that some lab services such as case planning, shade verification, chairside consulting will not be subject to the tax. Billings involving a physical product such as crowns, bridges,dentures, implants will be subject to the tax from the provisional to the completed stage. Delivery and insurance, if charged separately, will not be subject to the tax.
3) In Reports/Sales Analysis, there will be a new report: Items Subject to Medical Device Tax. For a specified date range this will provide the invoiced total for each item, along with the calculated tax and then grand totals for both. These can be used in IRS Form 720 for reporting on a quarterly and annual basis and can also be entered into QuickBooks for the electronic payment. In addition, this report will provide supporting document should you be audited. Already in DQB is provision for recording your FDA Registration number. In your planning, be aware of these things: 1) You can try to recoup this from your customers in the form of a price increase or as a separate line item on your invoices, but keep in mind that the tax is on the amount billed. Therefore, if you increase an item from $100 to $102.30, the tax is calculated on $102.30, not $100. If the customer is savvy, they will likely refuse to reimburse you for the medical device tax line, citing the IRS regulations that this is a tax on manufacturers, not on customers. 2) The full amount for the medical device is taxable and cannot be reduced by rebates or discounts.
3) Since this is a tax on manufacturers, no customers are exempt. 4) If you are in a state and/or county that already imposes sales tax on your work, the items subject to the sales tax may be different than those subject to the medical device tax. We have developed a document called DQB Compliance Measures that covers this tax as well as other requirements. Let us know if you would like a copy emailed to you. We ask that those who have gotten behind on updating their systems allow enough time to accomplish this as soon as possible. Do not wait until the holiday season at the end of the year. All labs serving the USA should definitely plan to implement the October release and then begin the preparation you will need for January 1:
- Determine which items will be subject to the tax and mark these in the item records.
- If you have been charging a flat price, but now a portion of this would not be subject to the tax, you may want to break this down into separate items.
- If you will be changing your price structure to cover this tax, you will also need to determine how you will handle this with your customers.
- If not yet setup for e-filing with the IRS, register for this at http://www.irs.gov
- If not yet setup for your excise tax free sales, file IRS Form 637. When purchasing from another company that may be subject to the medical device tax, add to your purchase order "articles are being purchased for further manufacture" and list your 637 registration number.
- Be on the lookout for revised IRS forms 720 and 637 to review the information you will need to provide.
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