Chemence Medical Products is on the hook for the 2.3% medical device tax on the medical adhesives it makes for distributor Medline Industries, a federal judge ruled this week.
Chemence and Medline inked a supply contract in August 2010. After Chemence said in late 2012 that it planned to pass the tax along to Medline, Medline objected and said it viewed the move as a breach of contract, according to court documents.
Chemence sued Medline in the U.S. District Court for Northern Georgia in February, seeking a ruling from Judge Thomas Thrash Jr. that Medline is obligated to pay the medtech tax, a 2.3% levy on all U.S. sales of prescribed medical devices.
But Thrash shot down the Chemence bid, ruling that the terms of provisions of the tax statute, enacted as part of the Patient Protection & Affordable Care Act, plainly state that manufacturers are on the hook for the lev, according to the documents.
"The court concludes that, based on the plain terms of the statute and its regulations, the device tax is to be borne by manufacturers when, as here, the manufacturers are taxable," Thrash wrote. "Here, the ACA ‘imposed on the sale of any taxable medical device by the manufacturer, producer, or importer a tax equal to 2.3 percent of the price for which so sold.’ The language of the statute itself imposes a tax on the ‘manufacturer, producer, or importer,’ not on a distributor, like Medline, or a retailer or a consumer. … The statute itself and its regulations plainly place the burden of the device tax on the manufacturer."