Medical-Device Excise Tax Revenues 24 Percent Short of Target

The medical-device excise tax is supposed to raise $20 billion of Obamacare’s $438 billion of revenue through 2019. The IRS started collecting the tax in January 2013, and expected to get $1.2 billion in the first half of 2013. The actual take? $913 million — a shortfall of almost one quarter.

This is the conclusion of a report by the Tax Inspector General for Tax Administration (TIGTA). However, the report also found a “discrepancy” of $118 million between what the IRS collected and the amount TIGTA believes was owed. Why? To put it simply, it is proving very difficult to determine which firms owe the tax.

So, it is not clear whether the IRS will eventually figure this out, turn over some rocks to find companies ducking the tax, and start collecting from them. In that case, the IRS might hit its revenue target. On the other hand, the report notes that the IRS levied 219 “failure to report penalties” during the period, which were later found erroneous. They IRS has apologized and reversed those penalties. So, the IRA may be over-zealous and over-collecting.

As Vice-President Biden would say: “Who knows, man? Who really knows?” One thing is for sure: Obamacare relies on tax revenue that is far riskier and volatile than its framers anticipated. Hopefully this will make the repeal of this universally reviled tax easier to accomplish.

Comments (7)

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  1. Devon Herrick says:

    Devices that are normally sold directly to consumers in retail establishments are exempt from the tax. Count yourself lucky: you toothbrush and bandage would otherwise be subject to the tax.

    Maybe Zimmer set up a retail kiosk inside hospitals to distribute the hip implants. Maybe DePuy sends out a catalogue and claims it sells implants by retail mail-order. In addition, many items inside the hospital are leased. I can see a medical device firm telling the IRS… “What do you mean we own tax on this MRI machine? We didn’t sell this, we still own it.”

    • Buster says:

      Over-the-counter (OTC) medical devices, medical supplies) and non-prescription drugs ARE subject to a new tax. This due to the PPACA’s prohibiting the use of HSAs, HRAs and FSAs to purchase OTC medical supplies.

  2. Big Truck Joe says:

    It’s a voluntary tax bc the IRS, short of individually investigating every medical device company out there to determine if they sell taxable devices, has no way of knowing who fits their requirements and who don’t. Maybe Taxonomy codes could whittle down the number but then you’d have to find out who is selling to hospitals and not patients and then forcefully get them to pay their tax. Just like the rest of Obamacare, all bleeped up with nobody to blame.

    • John R. Graham says:

      I should note that the report was redacted. So, the IRS is probably thinking up other ways to skin the cat.

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    Medical-Device Excise Tax Revenues 24 Percent Short of Target | Health Policy Blog | NCPA.org

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