05.21.13
Traditionally, excise taxes have been imposed on products and services perceived to be luxury items and commodity items that the public has alternatives to purchasing. This includes gas-guzzling automobiles, sport fishing equipment, tanning salon services, and certain types of specialty fuels. Medical devices now have been added to the updated forms of the IRS referencing those same luxury and commodity items. Notwithstanding the argument that medical devices are not luxury items or commodities for which alternatives exist, the impact of the tax is further exacerbated by the functional definition of excise—which means to “cut out surgically,” “carve out,” or “remove from the whole.” In the case of excise-taxed products, the item is taxed on the whole sales price to the purchaser (or amount of business done), not the portion of profit derived from the sale.
In the case of medical devices, especially in the early phases of startup or product life cycle, the realization of profitability from a medical device may be years off (if ever) in the future of the manufacturer based on the investment, cost of development, and potential for increase in sales volume or units sold. The potential impact on mid-level to startup medical device manufacturers with business model profitability that is not fully realized can be an especially significant impact to the developing financials.
In the case of medical devices, especially in the early phases of startup or product life cycle, the realization of profitability from a medical device may be years off (if ever) in the future of the manufacturer based on the investment, cost of development, and potential for increase in sales volume or units sold. The potential impact on mid-level to startup medical device manufacturers with business model profitability that is not fully realized can be an especially significant impact to the developing financials.