When the Affordable Care Act passed in 2010 it included a provision redefining a “medical device” to include most equipment made in a dental lab. This new definition carries with it a 2.3% tax at the lab level, a tax that will be passed on to consumers who will see a modest increase in prices starting January 1st 2013. According to the ADA’s website dentists will not be responsible for collecting, reporting or paying the new tax as it is a manufacturer's excise tax.
As “medical device” is itself a broad term, the tax will mostly be applied to materials used to produce many devices utilized in dental practices rather than taxing the final products themselves. An estimated 180,000 items fall under the new tax, with dental items accounting for approximately 130 taxable materials. The devices expected to be taxed include sleep apnea masks, N20 and 02 delivery systems, X-Ray equipment, CAD/CAM machines and carries detection devices.
Eric Thorn, in-house counsel for the National Association of Dental Laboratories (NADL) told Dr.Bicuspid.com, “If your profit margin is 10%, absorbing the 2.3% cost of the tax will mean making almost 25% less, so the impact of the Medical Device Tax really needs to be viewed in relation to one's profit margin and not necessarily in relation to the sales price. The impact is much more significant than it might seem." He goes on to say, "If you look at it in terms of its relation to their [dental labs] profit margin, I suspect that more likely than not most labs will feel the need to pass it on because prices have been very flat, and there's really just not a lot of room for most labs to absorb additional costs in this environment," Thorn said. "So the next question becomes: Will the dentists increase the costs to their patients? And it's a very reasonable assumption."
While over-the-counter products are exempt from this tax, the cost to the consumer as well as the dentist is sure to increase. Requests by the ADA and the NADL to the IRS for exemptions to the excise tax were denied. The main complaint it seems is that the list of taxable materials is garnered from the FDA’s list of dental materials and this list was compiled without any thought of taxation. The IRS using this list now to determine taxation is so seemingly arbitrary that much confusion has arisen. The ADA reports that the IRS has allowed temporary relief in the first three calendar quarters of 2013 “in consideration of the short time frame between the effective date of the tax and the due date of the first deposit, and in the interest of sound tax administration.”
From the ADA: “The ADA plans to reach out to manufacturers and vendors in order to express dentistry’s view of the limits on the device tax and to come to a unified position as to how the tax should be applied and collected. The Association will continue to track the new medical device excise tax and will provide information through Association media including the ADA News.”