Officials With NCPA Weigh in on Pass-Through Deduction in New Tax Law

Officials with the National Community Pharmacists Association (NCPA), which represents the owners of 22,000 small businesses, provided comments this week on the Tax Cuts and Jobs Act to Treasury Secretary Steven T. Mnuchin on the Qualified Business Income Deduction proposed rule.

The new tax law signed by President Trump in December 2017, provides individuals with a deduction of up to 20% of their qualified business income from a domestic business operated as a pass-through entity (a sole proprietorship, partnership, S corporation, trust, or estate). However, the Qualified Business Income Deduction proposed rule would expand the "specified service trade or business," or SSTB, definition of "services performed in the field of health" to include pharmacists. This may keep them from receiving the pass-through deduction, as any health care professional under the SSTB definition would not receive it unless an exemption applies.

In a letter to Secretary Mnuchin, NCPA officials asked the Treasury Department to clarify regulations for the Qualified Business Income Deduction, or pass-through deduction, specifically related to community pharmacists' right to obtain the pass-through deduction.

"The inclusion of pharmacists in the Proposed Rule...is overly broad and presents some factual distinctions that are necessary for appropriate application of the pass-through deduction," NCPA wrote. "For example, the inclusion of pharmacists in the Proposed Rule may lead to the potential misapplication of the pass-through deduction because in the community pharmacy sector, most pharmacy owners are also the pharmacist and the pharmacist/pharmacy owner makes revenue from selling pharmaceuticals or medical devices that should not qualify their business as an SSTB."

The letter continues, "In contrast, a pharmacist who operates as a consultant and is paid as an independent contractor should be considered an SSTB that is not entitled to the pass-through deduction because the revenue for their business is largely generated via services provided. The Proposed Rule should recognize this distinction in the pharmacy profession so that pharmacies and pharmacists mostly engaged in selling pharmaceuticals or medical devices will still benefit from the pass-through deduction under section 199A. Finally, it is unclear whether the performance of services related to the field of health, including researching, testing, and manufacturing pharmaceutical or medical devices would be included in the Proposed Rule’s definition as a medical service."

NCPA has long advocated for Congress to address tax fairness for small businesses, asserting that a reduced tax burden would relieve some financial strain on pharmacists and allow them to invest more in their business. Tax laws and pharmacy are also an area of focus this week at the NCPA Annual Meeting.