Most dealers in refurbished medical imaging equipment likely won't feel the sting of the new medical device excise tax, according to a summary of a phone conference with government lawyers released by a trade group yesterday.

The excise tax, which went into effect this month, hits manufacturers and importers with a 2.3 percent tax on the sale of medical equipment or devices. In its final rules released late last year, the Internal Revenue Service said the tax would apply to refurbished or remanufactured devices if the refurbishing process resulted in a "new and taxable product." But ambiguity remained. At what point would a device be refurbished enough that it would constitute a "new and taxable product"?

Now, dealers might have an answer. A letter published by the International Association of Medical Equipment Remarketers and Servicers Inc., a resellers and refurbishers trade group, on its website Wednesday suggests most companies that simply repair or spruce up equipment are off the hook.

In line with earlier reports, the IAMERS letter also suggests that secondhand equipment sales are not liable for the tax. However, the issue of how software upgrades are taxed remains unresolved.

"I think it's a really good thing for people selling pre-owned equipment, as is where is, I think they're very safe," Diana Upton, the president of IAMERS, told DOTmed News. "I think from the standpoint of refurbishment, it is going to be OK for the vast majority of those, too."

The letter, dated Jan. 8 and written by IAMERS counsel Robert J. Kerwin, was addressed to two attorneys, Natalie Payne and Stephanie N. Bland, with the Office of the Associate Chief Counsel, Passthroughs and Special Industries, a federal office that gives legal advice about excise taxes and other matters.

In the letter, Kerwin summarizes two telephone conferences with the office. In the first, on Dec. 21, IAMERS and the attorneys discussed used medical equipment. In his summary of the discussion, Kerwin suggests that the IRS indicated used medical equipment would not be taxed, even if the first sale of the equipment happened before the tax went into effect at the beginning of this year.

The second call happened Jan. 4, and also involved IAMERS board members Jeffrey Fall of Oxford Instruments and Hiren Desai of Soma Technology. On that call, Kerwin's summary of what the IRS said indicates that refurbished equipment merely repaired back to original equipment manufacturer specifications likely would not be taxed. But one situation in which refurbished devices could be taxed is if parts of several devices were used to create a new item. From Kerwin's letter:

You advised that repairing equipment would not ordinarily require the imposition of the medical device excise tax but that such would be applied if the equipment was repaired in such a way as to constitute a 'new and different' taxable item. A discussion was subsequently held wherein a situation was posited where a new piece of equipment was formed from the parts of three different pieces of equipment. I used the term 'cannibalized' which you did not adopt in your discussions. You did advise that in such a situation, you would expect that the refurbished or remanufactured equipment would be taxed, and that there would otherwise have to be adequate support for the taxpayer to take the position that the equipment was not subject to a medical device excise tax. Absent this type of situation, you advised that the medical device excise tax would not likely be imposed on refurbished or remanufactured equipment as the equipment would not be a new and taxable item.

However, there is one point of caution to note. Kerwin observed in the letter, "You also advised that there is no 'bright line' which could be imposed with respect to when equipment is determined to be 'a new and different taxable item."

In other words, for those who might be affected by the tax, it's still a good idea to get your tax lawyer on the line.

Also, one key issue for dealers and manufacturers remains open -- how the agency will tax software upgrades. Kerwin said the IRS indicated in its recently released guidance documents that it will still be considering and evaluating what to do about the matter.