The medical device industry is looking for some clarity from the IRS on the meaning of the word “manufacturer” as it applies to a tax contained in the health care reform law.
Attempting to make sure contract manufacturers and original equipment manufacturers are not taxed twice for the same product under the new medical device excise tax provision, the Advanced Medical Technology Assn. sent an 18-page letter to the federal tax agency asking that the IRS consider several AdvaMed recommendations on implementing the tax.
AdvaMed has been a staunch opponent of the tax since it was first bandied about as an idea in the contentious donnybrook around what became the Patient Protection and Affordable Care Act back in September 2009.
“AdvaMed and its member companies continue to believe the medical device excise tax is a serious burden for companies struggling to maintain America’s global leadership in the development of medical technology. But if the tax is implemented, it must be done consistent with the law’s intention and in a way that can be administered practically and efficiently by medical device companies and the IRS,” wrote Christopher White, AdvaMed’s general counsel.
The public comment period could be critical in shaping how the law is administered. In particular, AdvaMed is pushing for the IRS to clearly define what a manufacturer is under the tax. Because the medical device industry is heavily reliant on a vast network of component manufacturers, the possibility of a single product being taxed multiple times is possible under a broader definition. Including contract manufacturers in the excise tax formula could have broad implications for small contract and component manufacturers.
“AdvaMed recommends that the IRS retain the current definition of ‘manufacturer’ but clarify that manufacturing activities only involve physically transformative activities, including the re-processing or re-manufacturing of taxable medical devices,” White wrote. “AdvaMed further recommends that the IRS give consideration to the factors reflected in the contract manufacturing regulations in determining which of two parties to a contractual arrangement involving manufacturing is the manufacturer, rather than relying primarily on which party has legal title to the articles during the manufacturing process.”
The letter was submitted as part of a public comment period to the IRS on how the medical device tax will be administered. The 2.3 percent annual tax on U.S. sales goes into effect in 2013. AdvaMed officials said they will submit further public comment as the debate continues.