Medical Devices

2013 brings painful financial questions for small business owner calculating device tax

Let’s say you make headlamps for surgeons.  Some have high intensity lights, some have cameras, some even record in HD. You make some of the components and you buy some.

How would you calculate the 2.3 percent medical device tax that you now owe the government? Do you tax the entire cost of the final product? Or only the parts you made?

What about your suppliers, can they help? Maybe.

This is how 2013 has started off for Lynn Cooper, president and CEO of BFW Inc. Her company makes two lines of headlamps. They are used in hospitals across the country. She employs four full-time people and two part-time in Louisville, Kentucky.


“This is a salary for me,” she said. “They are always talking about supporting small businesses, but this is not helping.”

Cooper said that based on conversations with suppliers and other people in the industry, BFW is ahead of the game in terms of figuring out the tax.

“A couple months ago, I contacted my suppliers and they didn’t even know what I was talking about,” she said. “People thought it would go away, or that they might not get hit.”

She said that one of her suppliers has decided how to deal with the tax but another has not.

Cooper’s work so far to figure out how much her company will owe supports AdvaMed’s recent survey about the high cost of simply implementing the tax.

“The guidance is not very clear,” she said. “I probably spent six hours with my tax advisers trying to determine which products I sell will be affected and how to keep track of everything.”

Last year, Cooper earned Delta Air Line’s top frequent-flier status. She travels to Asia several times per year and her husband covers Europe. She said 40 percent of her sales are exports, which are exempt from the tax.

Her American customers include Massachusetts General; University of California, San Diego; Duke University and Mount Sinai. Many teaching hospitals use the headlamps to record procedures.

“With our new unit, hospitals can purchase one with a USB port or output to a recording device,” she said. “They all have endoscopic equipment and they record those procedures.”

Cooper has contacted her representatives and signed petitions against the tax, and is hoping for some kind of relief. However, she is preparing for the worse and increasing her prices to cover the tax.

“I’ve been telling people they need to take it seriously because if they don’t, you could end up at the end of 2013 with a bill for 12 months’ of taxes that you haven’t been collecting.”
[Image from BFWInc]

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