NADL: Most products by U.S. dental labs won't be subject to federal Medical Device Excise Tax

TALLAHASSEE, Fla. (11/2/12)--The National Association of Dental Laboratories, the trade association representing the interests of nearly 10,000 dental laboratories in the United States has put forth a legal analysis that indicates that most finished devices made in a dental laboratory setting will not be subject to the new federal Medical Device Excise Tax which goes into effect January 1, 2013.

“We are pleased with the proposed IRS definition, nonetheless, there are certain devices made in a dental laboratory setting that are required to be listed with the FDA and as a result will meet the IRS definition of a “taxable medical device”

Since Congress passed the Affordable Health Care Act in 2010, the NADL has worked diligently to educate the industry on the elements of the medical device excise tax requirements that may affect dental laboratories. When the law was first passed, there was perspective that due to the broad FDA definition of “medical device”, devices made in the laboratory setting at that point of sale would be subject to the tax.

The Internal Revenue Service has recently published proposed rules relative to implementing the new law. NADL, through the work of its in-house legal review and the outside-counsel, has determined that the published IRS proposed rule does not subject most devices made in the domestic dental laboratory setting to the medical device excise tax.

This legal analysis is based on the definition of “taxable medical device” set forth in the proposed IRS rule. (See §48.4191-2) In order for a device to be subject to the new tax and considered a “taxable medical device”, it must be a device listed that is required to be listed as a device with the FDA. While many of the materials such as alloys or ceramics that are used to make dental restorations are devices that are listed with the FDA, a domestic dental laboratory that makes dental devices that are not required to be listed with the FDA will not have to register with the IRS and will not have to file quarterly Medical Device Tax returns.

The majority of dental devices made by domestic dental laboratories do not have an FDA product code and are not required to be listed with the FDA.

“This means that if the IRS adopts the Proposed Rule on taxable medical devices then domestically made crowns, bridges, dentures, veneers, and some orthodontic appliances will not be subject to the medical device tax at the point of sale from the dental laboratory to the dentist. This is very good news for many domestic dental laboratories and will save most domestic dental laboratories from the considerable cost of compliance and logistical burdens that most businesses in our industry would otherwise face beginning January 1, 2013,” says Warren Rogers, CEO of Knight Dental Group, Oldsmar, FL and president of NADL.

“We are pleased with the proposed IRS definition, nonetheless, there are certain devices made in a dental laboratory setting that are required to be listed with the FDA and as a result will meet the IRS definition of a “taxable medical device”. Those products include imported restorations made by foreign dental laboratories since those devices are required to be listed with the FDA. Sleep apnea devices and some dental implant devices made by domestic dental laboratories must also be listed with the FDA. Those dental laboratories that make devices that are required to be listed will be subject to quarterly IRS filing and remitting the 2.3% medical device tax beginning in 2013,“says Eric Thorn, Esquire, NADL in-house counsel.

For domestic dental laboratories, they are likely to see the 2.3% device tax cost impact when they buy materials and equipment from dental manufacturers and suppliers, as most of the raw materials used by dental laboratories to make a completed dental device have an FDA product code and are required to be listed with the FDA. As a result those materials will be subject to the medical device tax.

Dental laboratories can obtain basic information on the NADL legal analysis at www.nadl.org. Members of the association have access to comprehensive guidance.