The 2.3% tax imposed on medical devices was part of the Health Care and Education Reconciliation Act of 2010 (HCERA), signed by President Barack Obama on March 30, 2010. In section 1405, HCERA applies an excise tax of 2.3% on the first sale of certain medical devices. The 2.3% tax is a tax on revenues, not a tax on profits and should not be confused as such. Consequently, for a company with a 2% profit margin this tax would be greater than its profits.
What is an Excise Tax?
An excise tax is a tax applied on the sale of a product within a country, making it a tax on revenue instead of profit. Sometimes known as an "inland" tax, it is effectively a tax on local goods as opposed to taxes on imported goods. It is common for any good to which an excise tax is applied to increase its price and effectively pass the tax on to the customer. An excise tax may be imposed in addition to taxes such as sales tax. The exact amount that the tax will cost each company differs.
What the 2.3% tax covers
The 2.3% tax imposed by HCERA is applied to any taxable medical device as defined in Section 201 of the Federal Food, Drug, and Cosmetic Act that is intended for human use. Certain devices are exempt from this tax, including hearing aids, contact lenses, glasses, and other medical devices which are typically sold to the public for individual use.
When the 2.3% tax begins
Unless it gets blocked the tax imposed by HCERA will take effect after December 31, 2012. Therefore, any sales prior to this are not covered by the tax.
Industry Reaction to the HCERA tax
The industry reaction has been primarily negative. Industry studies have noted that 40,000+ jobs are at risk of being lost due to the tax, primarily within the United States. Some companies have already announced plans to cut workers and slash budgets. The Advanced Medical Technology Association also noted that companies developing new technologies and machines are typically not profitable for a number of years, so any additional taxes on their total revenues may make it difficult or impossible to continue operating. This is expected to reduce American innovation and competitiveness. Accordingly, the Advanced Medical Technology Association favors repealing or modifying the 2.3% HCERA tax. Other organizations typically have similar views.
At the far end of the negative spectrum, some have suggested that the 2.3% tax will result in greater patient mortality because the technologies and products to treat certain problems cannot be afforded.
Dealing with the 2.3% tax when selling your product
So what does this mean to you as a sales representative? It may be an opportunity to push your customers for additional sales before the end of the year to avoid any price increase caused by the 2.3% medical device tax. But, first of all, talk to your team leader, manager, or whoever is in charge of deciding your company's image and see if there is any particular stance that your company would like to be present. They may want you to avoid bringing it up altogether, but ask what you should say if the customer brings it up.
Being ready to answer the customer's questions, including details such as those above, can help you come across as well-versed in the subject and improve your marketing technique. If your company has any particular special going on (for example, a reduced price for buying in bulk where your company will cover part or all of the tax instead of passing it on), use that to its fullest at appropriate times. At all times, you should follow your company's decision on what stance to take and how to deal with this topic, regardless of who brings it up.
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