Groups blast new IRS device tax rules

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Internal Revenue Service guidance released in December spells out how a 2.3% excise tax on medical devices would be carried out. But manufacturers and other organizations likely to be harmed by the new rule want to delay or eliminate its implementation.

“Congress should act to address this $30 billion tax before it takes effect,” said AdvaMed CEO Stephen Ubl.

The medical device tax remains a controversial aspect of the 2010 healthcare reform law. The revenue service's 58-page final rule for implementing the first-ever levy has many manufacturers pressing Congress to intervene.

At press time, many critics said they were hoping a repeal could be folded into an agreement between Congress and the president to avoid the looming “fiscal cliff” of tax increases and spending cuts. 

The imminent excise tax would be levied on gross sales received by medical device manufacturers after Dec. 31, 2012. It's expected to raise $29 billion in tax revenue through 2022, up from the original projection of $20 billion. 

“The excise tax is on the medical device manufacturers and importers (who) will now have access to thirty million new customers due to the healthcare law,” countered Treasury Department spokeswoman Sabrina Siddiqui in a prepared statement.

Under the IRS “final rule,” the tax applies to most devices used or implanted by healthcare professionals. These range from tongue depressors to pacemakers. But certain devices that are sold over the counter — such as eyeglasses, contact lenses, and hearing aids — are exempt from the tax. Another exception applies to prosthetics. 

Critics noted that the IRS final rule didn't resolve all the questions. For instance, it's not clear if companies selling latex gloves and other  “dual-purpose” products to regular customers as well as medical professionals would be taxed on those products.

The House passed legislation to repeal the new tax in June 2012. But the Senate never voted on the measure, thus allowing it to stand. 


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