Starting January 1, 2013, medical device makers across the US will get "hammered" with a 2.3% Medical Device Excise Tax (MDET). Believed to help the US government raise nearly $20 billion by 2019 towards the Affordable Care Act, the MDET is causing a stir among the medical device community. Tax solution companies, such as Thomson Reuters ONESOURCE, believe they have the answer.

Important Details: A recent MarketWatch headline announced Thomson Reuters' actions to help their customers minimize the impact of noncompliance to the MDET requirement through software automation. The ability to handle MDET has recently been added to Thomson Reuters ONESOURCE indirect tax solution, such that real-time calculations of the 2.3% MDET for every medical device sold can be performed by its users to alleviate the fear of audit exposure. But concerns around this tax still loom: How will this impact the medical device makers and their consumers?

Implications: Product developers and manufacturers have been "squeezed" in the recent years to lower operational cost, improve working capital, while investing in research & development (R&D) to ensure survival in a competitive market. Medical device companies are no different, and are concerned that this new tax could cut into their profits, and budgets for critical R&D. Despite this tax being paid by the device makers, the cost of such financial impacts can be passed onto their customers (consumers who are already challenged by the high cost of healthcare), defeating the purpose of the March 2010 Affordable Care Act. Tax solution providers, such as Thomson Reuters ONESOURCE, CCH (a Wolters Kluwer Business), Vertex, Corptax, and Avalara have supported their customers' indirect tax compliance initiatives for years. These compliance measures are typically classified today under a more general enterprise governance, risk, and compliance (GRC) umbrella. Over the years, Outsell has monitored market size and trends in the GRC segment (see Report, 30 November 2011, Governance, Risk, and Compliance: Market Size, Share & Trend Report), and continues to view tax compliance as a critical element of corporate risk management and regulatory compliance.

A tax information and software solution provider like Thomson Reuters may not be on a mission to reverse the June 28, 2012 ruling on the MDET, but its proactive plan for preparing its current and prospective customers for the new excise tax is prompting others in the space to take notice. The ability to provide customers with real-time visibility to tax rates, rules, and regulations has always been the forte of information providers. But in light of accelerated Department of Revenue (DoR) audit activities to account for state revenue shortfalls, companies are taking more notice of their tax compliance practices. In support of such measures, tax management providers are converging information and software capabilities to enable their customers to achieve effective tax visibility to a dynamic regulatory environment, and to reduce tax preparation, filing, and remittance errors through automation.

For the medical device manufacturers, the newly-enacted MDET may impose on their financial objectives, but there is no denial that the biggest fear resides in unpredictable costs - those associated with fines, penalties, and corrective labor from Internal Revenue Service (IRS) audits. Such costs can negatively impact financial planning, budgeting, and forecasting initiatives, "eat" into working capital, and result in unanticipated business disruptions. Stay tuned for Outsell's continued coverage in the enterprise tax and GRC space in the coming months.

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