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MITA: Don't tax refurbished devices, service contracts

by Brendon Nafziger, DOTmed News Associate Editor | May 16, 2012
The Medical Imaging & Technology Alliance, an imaging OEM trade lobby, asked the IRS to exclude refurbished devices, service contracts and routine software upgrades from the 2.3 percent excise tax levied against device manufacturers.

The tax, set to go into effect next year, is meant to help pay for part of the costs of the Affordable Care Act, and was expected to raise $20 billion over the next 10 years (though device makers estimate the real figure is closer to $30 billion). But in a May 7 comment letter to the IRS, MITA asked the agency to ensure that scanners refurbished by device manufacturers aren't subject to the tax so that third-companies don't get an unfair advantage.

"In order to avoid creating an unfair competitive imbalance, it is important to ensure that device manufacturers who refurbish and re-sell their used devices are treated in the same manner as third-party refurbishers of the manufacturer's used devices for purposes of the device tax," the group wrote in the letter.

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The group said that fixing a system for re-sale doesn't rise to the level of manufacturing under existing regulations. Also, as used products, refurbished devices don't need separate Food and Drug Administration clearance or registration.

MITA also asked that service contracts and replacement parts used to fulfill those contracts be exempted from the tax. The group said that a contract is "clearly" not an FDA-listed device, so shouldn't be included in the sale price of a device when computing the tax. And the trade organization said this would also ensure manufacturers remain competitive with third-party servicers.

"Many customers choose to have their equipment serviced by third parties that are not manufacturers and would not be subject to a tax on service contracts," the group said.

In its letter, MITA also asked the IRS to clarify what constitutes a manufacturer for purposes of the tax and to allow transition relief for the first three calendar quarters of 2013, among other points.

MITA's comments were sent on the last day the IRS was accepting responses to proposed device tax rules, released in February. A hearing on the matter was scheduled for this morning.

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