Vet device tax loophole could help some diagnostic companies

Vet device tax loophole could help some diagnostic companies

While some in vitro diagnostic (IVD) companies will see a new tax on U.S. sales of their products this year, suppliers who make veterinary diagnostic testing products will benefit from the IRS interpretation of the Affordable Care Act, according to Kalorama Information. A full study of the animal testing market conducted last year noted the trend of IVD companies using animal health testing to grow profits and innovate products with less regulation. Kalorama suggests that the new tax provision could also make this sector attractive.

The Affordable Care and Patient Protection Act enacted in 2010 contains a 2.3 percent excise tax on the sale of taxable medical devices. Despite the efforts of industries and efforts to delay or repeal the tax, the law didn’t define what a device is, instead deferring to previous statutes. Those statues generally include veterinary devices in a medical device definition, but in its 2012 guidelines, the IRS read the ACA as relating to devices for human use and said devices not regulated by and listed with the FDA are tax exempt. To be exempted, a rapid test or other animal testing product has to be for exclusive veterinary use.

“We think it adds one more positive to a market sector that is already seeing growth,” said Bruce Carlson, Publisher of Kalorama information. “More lenient regulation already reduces development cost versus human products. Now there is an additional post-development factor that sales won’t be subject to taxes that other IVD products will.” According to Kalorama’s study, the veterinary diagnostics market exceeded $1.5 billion in 2011.