IRS finalizes new tax for medical devices in healthcare law

December 6, 2012

Reuters

(Reuters) - The U.S. Internal Revenue Service on Wednesday released final rules for a new tax on medical devices, products ranging from surgical sutures to knee replacement implants, that starts next year as part of President Barack Obama's 2010 healthcare law.

The 2.3-percent tax must be paid, effective after December 31, by device-makers on their gross sales. The tax is expected to raise $29 billion in government revenues through 2022.

Companies including Boston Scientific Corp, 3M Co and Kimberly-Clark Corp have been lobbying the U.S. Congress for a repeal of the tax.

A repeal bill passed the Republican-controlled U.S. House of Representatives in June, but it has not been voted on by the Democratic-controlled Senate.

Many medical devices that are sold over-the-counter - such eyeglasses, contact lenses and hearing aids - are exempt from the tax, as are prosthetics, the IRS said.

The tax applies mostly to devices used and implanted by medical professionals, including items as complex as pacemakers or as simple as tongue depressors.

Products sold for humanitarian reasons, such as experimental cancer treatment devices, are not exempt from the tax.

Some medical device companies are hoping to delay the tax's start date as part of a resolution of the "fiscal cliff" deadline at the end of the year involving many tax and spending measures, said Steve Ferguson, chairman of Cook Group Inc.

"We would like to be part of the punt," Ferguson said, referring to an extension of current tax policy into 2013.

In one potentially problematic aspect of the tax, companies selling dual-use products to medical and non-medical customers must pay the tax on those products, potentially putting them at a competitive disadvantage, said Lew Fernandez, a director at PricewaterhouseCoopers LLP and a former IRS official.

For example, it remains "an open question" when latex gloves come under the tax, he said.

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