New York Times Accuses Device Industry of Undue Monetary Interest in Government; AdvaMed Pressures IRS
Concurrent with a very pointed New York Times (NYT) editorial accusing medical device lobbyists of having an inappropriate hold on Washington, D.C., lawmakers, industry advocacy organization AdvaMed (the Advanced Medical Technology Association) continues to push back, challenging the Internal Revenue Service (IRS) on the definition of the medical device excise tax.
According to AdvaMed, the 2.3 percent excise tax on medical device sales is causing confusion among manufacturers. Comments submitted to IRS asked for clarification of the use of per purchaser vendee statements as proof of export or further manufacture rather than per sale statements; interim constructive price rules; the excise tax treatment of rebates and discounts; taxability of demonstration items and loaned devices; charitable donations; and device excise tax treatment of repairs and modifications.
The comments thanked the IRS for its appreciation of the “complexity of the medical device industry,” and noted “In particular, the final regulations’ emphasis on the non-exclusivity of the retail exemption factors and the regulations’ retail exemption examples provided useful additional guidance for industry and was responsive to AdvaMed’s concerns expressed in earlier submissions.”
AdvaMed challenged the IRS on the requirement for tax-exempt status for manufacturers that sell to an exporter who then sells the device outside the United States. It is extremely burdensome to prove tax-exempt status, according to the group, because of the “complex global supply chains of many medical device companies.” Frequently, different components are manufactured in multiple countries or locations, and may require the movement of partially-constructed devices in and out of the country at various points in the manufacturing chain. So the group asked for a reconsideration of this requirement.
The organization asked IRS to make clear that the tax only would apply to new components listed separately with the U.S. Food and Drug Administration. According to AdvaMed, the status of refurbished, repaired or modified devices remains unclear, despite the fact that federal attorneys have indicated in the past that such devices and equipment most likely will not be subject to the tax. AdvaMed suggested a “bright line safe harbor,” putting forth that the “repair or modification [of a device] will not result in manufacture of a new and separate article if the charge for the repair or modification does not exceed 75 percent (or other appropriate percentage) of the manufacturer’s selling price of a comparable new item.”
The comments also urged the IRS to forgive taxation for devices donated to doctors going on medical missions of disaster relief trips.
AdvaMed also detailed minutiae of the operational practices of medical device companies, and how they differ from other industries that traditionally have excise taxes imposed on them, in an attempt to plead its case for the unfairness of the tax.
According to the NYT, the medical device industry donated nearly $1.4 million to 75 senators in 2012, and $2.8 million to 308 U.S. House of Representatives members. Device makers also have spent more than $150 million on Washington lobbying since 2008, according to the Center for Responsive Politics. Last December, 18 Democratic senators, including Charles Schumer of New York and Richard Durbin of Illinois, wrote a letter urging a delay of the tax. Industry lobbyists have succeeded in garnering bipartisan support for a repeal of the device tax, despite the fact that there have been no solutions forthcoming on how to fill the resulting monetary hole.
One of the most persistent arguments against the tax is that it would stifle innovation and send jobs overseas. U.S. Sen. Elizabeth Warren (D-Mass.) has been vocal on this issue, being from a state rich in medtech. The NYT editorial board thinks differently, though: “That’s a high-minded justification, but, except for the industry’s complaints, there’s no evidence the tax will really have that effect,” the newspaper stated.