Obamacare Medical Device Tax solutions?

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Posted on by Jordan Taub

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Has anyone in the Medical Device industry come up with or found a 3rd party solution to deal with the upcoming Obamacare Medical Device Tax? I am unsure if the standard GP Tax system will handle this?

Our company would need to sort the tax by specific Item # and then apply it to a specific company and then collect the tax amounts in a GL holding account. It would have to integrate with Sales order processing and product Return Credits. We have thousands of domestic and foreign customers so we are looking for something that can be turned on and off quickly and applied locally and/or globally. The tax can't be collected from the purchaser and cant be passed by invoice to that purchaser. This is essentially a Manufacturers Tax.

If 3rd Party software is available, what is usuall implimentation time? - as the industry is trying to have the tax repealed and I would like to hold out as long as possible.

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Hi - since no one has attempted an answer - I'll take a go!!

I'm not up to date with the Medical Device tax - but I presume its something like the following:

When you sell a medical device to a customer, you need to charge them an extra percentage as a tax, and you need to account for this tax for eventual payment to the authorities?

If so - then this is very similar to Sales Tax. I would test all of this in a test company.

I would set up a Tax Detail called 'Obamacare'. I would set it to post to a GL Account set up to track this tax, and set up the percentage tax to calculate.

I would then set up a tax schedule called 'Obamacare' and assign the tax detail above to it.

Then I would open the specific Medical Device inventory item in Item Maintenance. Set its Sales Tax Option to 'Taxable' and select the 'Obamacare' Tax Schedule.

Now - every time you sell the item, it will calculate the sales tax.

Thats certainly a start. There may be other complications I don't know about - such as maybe charging / not charging depending on where the customer is located, or maybe there are other sales taxes that need to be charged along with the Medical Device tax.

Ian.

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Jordan Taub 470 on at

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Hi Ian,

Unfortunately this tax is a Manufacturers tax and can't be billed to the customer. It's levied on the OEM. So it can't show up on the invoices and cant increase the sales price on each invoice. Therefore it can't increase my gross sales. In reporting it would actually act like an expense against my gross sales and reduce my net.

Ex. Some customer buys my product and then the government taxes me for it instead of the customer.

Its a very hard tax to control as I need total control of it on the Item Level, Customer Level and possibly the SOP entry level. There are times when the same customer ordering the product would have the tax levied on us and then times when it would pass through.

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Understood. How do we know when the customer should have the tax levied, and when it should pass through? Is there some rule?

You could use one of the SOP User Defined fields to manually record the Tax amount for those invoices where the Tax is levied. Then run a smartlist at the end of the month and manually enter a GL journal for the total tax amount - debiting Sales and crediting 'Obamatax Due'.

Ian.

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Jordan Taub 470 on at

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Hi Ian,

I am sorry I didn't get back to you earlier. I set up the tax and the tax schedule and it pulls the tax from the product. But it ads the tax to the invoice and increases the Total Sale price of the invoice. This I can't pass on to my customer. The issue is this is a Manufacturers Tax not a Sales Tax.

As far as tracking who gets the tax and who doesn't would be assigned to Customer Class ID's I have these set up to reflect who is a US customer and who is Foreign. example: USDLR, USDENT, FORDLR (US DEALER, US DENTIST, FOREIGN DEALER). I assign the tax to the USDLR and USDENT and not FORDLR and it applies to all customers that have those class ID's. I then can manually unapply individual customers that have the Affected CLASS ID's.

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Jordan Taub 470 on at

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To add a little more info to answer your question on when the tax would be levied and when it would pass through - It depends on when the customer we sell to domestically, then sells the product over seas to a foreign agent. I think the answer to this would be levy the tax 100% of the time to this customer and then we ask client for a Foreign Bill of Lading with Invoice so we can submit this to IRS for a refund of taxes paid.

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KevinD 215 on at

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I'll chime in even though I don't have an answer. I work for a Medical Device company affected by the tax , however we are using GP for our International Subsidiaries and using SAP for our US Company. So I don't need to do this in GP.

However, from what I understand of the Tax, it is a tax on Sales of a particular product (not on profits, but revenue). It is not a tax that you pass on to customers (explicitly anyways, you can always raise your prices).

A couple questions that might help guide the discussion.

Are you trying to accrue any of the Tax using GP? Meaning that when you make a sale, you would want to book a separate liability that you "Owe" to Uncle Sam?

Do we know if this is paid quarterly yet?

In this case, I am just thinking off the top of my head using some sort of sales commission structure. Otherwise, marking particular Items in Inventory in a user defined field that apply to Obamacare will at least allow you to run a subledger report at the end of a period for all of the Items that you sold and the revenue associated with that Item.

Again, I don't really have a solution yet, but I generally understand this new Tax, so I would be willing to help try to figure something out. I'll even ask my SAP counterparts on how they have decided to do it.

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KevinD 215 on at

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Just a bit more information: I just talked to one of the accountants and the tax is due twice a month! Apart from hoping that this gets repealed, they said that all they really do right now is run a subledger report on Items that have a user defined field flagged as "this is an Item we pay the taxes on." She also mentioned that it is only on 75% of the revenue of these Items as well. But she agreed that this is really more like a "Commission" to the government in terms of tracking. It seems like if you could somehow configure the Sales commissions module up with OBAMA as a sales Rep, and set it up by Item, that would probably be a decent workaround. This is a module I have only dabbled in a little bit, so maybe someone with a little more experience would be able to expand on that.

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Chip Reed 165 on at

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There is more to the problem and that is if the tax has already been paid. My client has a part that they can manufacture or purchase. If they purchase that part from an OEM the OEM pays the Obama tax, but if the part is made in-house my client pays the Obama tax. So we also need to track how the item was acquired and accrued the liability when the item is sold.

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Douglas Karel 2,140 on at

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What if the part is provided from an overseas OEM? Would they be liable for the tax? Thank you.

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Jordan Taub 470 on at

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You would need to probably have two Item #'s set up. One for the Out-sourced part and one for the in house part. Then set up alternative components for the Assemblage. I feel that might be very manual.

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