New Tax on Medical Devices

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Beginning on January 1, 2013, medical device manufacturers will have to pay a 2.3% tax on the gross income from many of their products.

The excise tax is on the medical device manufacturers and importers (who) will now have access to 30 million new customers due to the health care law.

~ Treasury Department spokeswoman, Sabrina Siddiqui

I’m not sure what is meant by this statement.  She appears to be justifying the new law in hopes that these companies won’t see it as the tax problem that it is.  She appears to be saying that the new tax should not be difficult to pay since medical device makers will have so much more business under Obamacare.

The new tax does not cover over-the-counter medical products such as hearing aids, eyeglasses, or cotton swabs.  It mostly applies to devices used by doctors and nurses inside medical facilities. There seems to be some ambiguity in the law with respect to items that could be considered medical or non-medical, such as latex gloves. Job security for the tax attorney, I suppose.

Bartering – It’s Still Income to the IRS

Assume Farmer John, an acquaintance, comes to my office with a small tax problem and I spend 10 minutes researching and looking for the answer.  I then provide him with a bit of advice, and he asks me what he owes me.  I ask him to give me a dozen eggs from his family farm and we’ll call it even.  Do I have to report this transaction as income on my taxes?

This is an exchange of one product or service for another, with no cash changing hands.  It’s a barter.  A barter may be an exchange of goods for goods, services for services, or as in my example, services for goods.  According to the IRS, the fair market value of the goods and services exchanged in a barter transaction must be reported as income by both parties.  So the $2.00 dozen of eggs must be reported as income on my taxes.  And the value of my services must be reported as income by Farmer John.

Besides the income tax responsibilities, there may be other tax implications associated with bartering such as:

  • self-employment tax
  • employment tax
  • excise tax
  • capital gains or capital losses
  • non-deductible personal loss

Bartering transactions take place in a variety of settings, including home-based online bartering businesses, bartering exchanges, or on an informal one-on-one basis. For more information about the IRS rules on bartering, see IRS Tax Tip 2012-33 and the Bartering Tax Center on the IRS website.

The Fake n’ Bake Tax

I spent more than a few minutes searching for an appropriate visual aid to go along with this post. I wanted to make sure it was just right.  Okay, maybe I got a little sidetracked.

If you’re not familiar with the new tanning tax that went into effect last summer, maybe you’re the type that likes to soak up the natural sunlight which, by the way, probably causes cancer just the same, but it’s harder to regulate.  The legislation that went into effect on July 1, 2010 imposes a 10% excise tax on ultraviolet tanning services — paid by the burn victims and collected (and reported) by the burners.

TIGTA (IRS’s big brother) released a report today showing that the new tax is not generating near the amount of revenue it was expected to generate.  It was supposed to raise as much as $50 million in the 4th quarter of 2010 and $200 million this year. Instead it raised only $17.8 million in the 4th quarter of 2010 and $36.6 million during the first 6 months of 2011.  So why the poor results?  These are some possible reasons that TIGTA identified:

  • The tax was pushed through quickly and the tanning industry wasn’t prepared
  • Businesses aren’t paying and the IRS isn’t enforcing compliance like it should
  • IRS has incomplete / outdated records of applicable businesses

Read about a recent public hearing on the tanning tax here.

Read about California’s recent ban on indoor tanning for minors here.

Read about the metal umlaut here.

IRS Offers Tax Relief in Response to Discontinued Air Travel Taxes

The Internal Revenue Service (IRS) announced that it would offer tax relief to those consumers taken for a ride by greedy airline companies. By July 22, 2011, Congress failed to extend federal air transportation excise taxes. The discontinued taxes include:

  •  A 7.5 percent tax on the base ticket price;
  • A domestic segment tax of $3.70 per person per segment (a single takeoff and single landing);
  • An international travel facilities tax of $16.30 per person for flights that begin or end in the U.S., or $8.20 per person for a flight that begins or ends in Alaska or Hawaii; and
  • A 6.25 percent tax on the amount paid for transporting property by air.

Air travelers with trips on or after July 23, 2011, who paid the discontinued taxes when purchasing their tickets on or before July 22, 2011, may obtain a refund from the IRS for the discontinued taxes paid, if the air carrier fails to refund the discontinued taxes.

In a greedy move, some air carriers have since increased their air fares in an amount equal to the discontinued excise taxes. Therefore, air travelers pay the same overall price that would have been paid if the excise tax had not been discontinued, with the air carrier profiting in accordance with the discontinued tax. It will be interesting to see if those greedy air carriers maintain their newly increase fares if and when the federal air transportation excise taxes are reinstated by Congress.