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Questions linger after medical device tax goes into effect

by Brendon Nafziger, DOTmed News Associate Editor | January 03, 2013

"If a customer purchases a replacement part for a larger imaging system, the manufacturer shouldn't pay a tax simply because they happen to sell the same part as a stand-alone product to another customer," Brian Connell, MITA's director of government relations, told DOTmed News. "A simpler framework would simply exempt replacement parts from the tax altogether, which would streamline compliance and prevent the tax from applying differently to different manufacturers in the same situation."

Old lease on life

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Medical imaging OEMs are also fretting over the way the IRS grandfathers-in old leases. As Connell observes, many of the products made by these OEMs are capital equipment, and thus are often leased. Lease payments on devices are subject to the tax, and manufacturers had requested that the IRS only subject future payments on leases signed after the tax takes effect on Jan. 1, 2013. However, in its final rules, the IRS said it would only grandfather in old leases that were signed before March 30, 2010 -- the date the Affordable Care Act, which enacts the tax, was finalized.

Thus, future payments on leases signed in the second quarter of 2010 or later will be taxed.

Used and refurbished

For resellers, at least, used equipment is safe.

Used equipment and parts will likely not be taxed, as the tax only appears to apply to the first sale of goods, according to a FAQ in the December newsletter put out by IAMERS, which represents equipment servicers and resellers.

However, the group's attorney, who wrote the FAQ, noted that the IRS did note that refurbished or remanufactured equipment would be the subject to the tax. IAMERS said it's in talks with the agency to figure out how, if at all, this will affect resellers, and could have an answer later this week.

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Wayne Webster

Medical Device Tax and Change In the Marketplace

January 03, 2013 10:30

The article brought into focus the many issues around the Medical Device Tax. I can't say whether this tax will cause thousands to lose their jobs or for jobs to move elsewhere, only the future will reveal what the effect of the tax's implementation.

What seems to be an unintended consequence is that the tax may shift the advantage to used equipment and parts because used equipment is exempt from the tax.

Surely the manufacturers of new equipment and parts will pass on the tax within their pricing structure. This increase in cost to the consumer may open up the opportunity to consider used equipment and third party service. It seems the tax increases the value of pre-owned devices and pre-owned parts.

In a market place where costs are increasing and reimbursement decreasing for consumers of these devices, the savings associated with used equipment may become even more significant as this tax takes hold and its associated cost is passed on to the consumer. Time will tell.

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