One tax expert thinks the two-year suspension of the device excise tax likely heralds further suspensions or a repeal.
Will it stay or will it go? That's been the question since the two-year suspension of the medical device excise tax was announced in late 2015.
One tax expert believes that the device tax won't be back. Michael Cronin, senior manager, New England state and local indirect tax and national medical device excise tax leader, at Grant Thornton LLP, called the tax suspension "the camel's nose in the tent." The suspension "hopefully allows bigger things, allows the camel in the tent, and hopefully this is repealed," he said.
Cronin was speaking on a webinar, "The Medical Device Excise Tax, Wrap Up, Audits and Refunds," hosted by the Massachusetts Medical Device Industry Council (MassMEDIC) on February 10. To support his statement, he noted that the current suspension makes it easy for Congress to delay the device tax again. He pointed out that the tax was deeply disliked by legislators in both political parties and raised less than initially expected.
"My crystal ball tells me this tax will go away and not only be suspended for two years," Cronin said.
That said, Cronin added that because nothing can be certain at this time, medical device manufacturers need to be ready to comply with a reinstatement of the device tax in 2018.
Evan though device companies won't need to file excise tax returns for the next two years, there's still a lot to think about regarding the excise tax. For one, some device companies may still undergo audits. Cronin pointed out that audits are still ongoing. He noted that there has been some debate over whether the tax suspension will lead to fewer audits, but he is currently assisting some medical device companies with audits and believes these will stay in full effect.
In addition to reviewing all the necessary documents and details companies should have ready for an audit Information Document Request (IDR), Cronin emphasized that it is important for manufacturers to clearly show IRS the specific methodology used to calculate the sale price for the tax base. Since there a few different ways to determine the taxable sales price, device makers should "make sure you have studies or memos that support what you're doing," Cronin said.
On a brighter note, device makers still also have a chance to apply for refunds. There is a three-year statute of limitations on refunds, Cronin pointed out, so refund filings for the first quarter the tax went into effect are due by the end of April 2016. Cronin said that since the excise tax was implemented relatively quickly and there are several factors influencing companies' tax base, there are plenty of opportunities for refunds. "I haven't seen one company that has not overpaid this tax," he said. "It's just a complicated tax to comply with."
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