5:00am

Fri May 25, 2012
Business

New Federal Tax Irks Medical-Device Companies

A new federal tax on medical-device makers doesn’t go into effect until 2013 but local companies in the Boulder Valley are already coming up with ways to cope with the increase.

KUNC’s Brian Larson spoke with Boulder County Business Report publisher Chris Wood for more.

Larson: Nobody likes taxes, let alone new taxes and this one has raised the ire of many – but before we dive into the impacts – tell us why this tax was put in place and just exactly what it would do.

Wood:Sure, Brian. This tax is part of the Affordable Care Act of 2010, better known as health-care reform. Essentially, every medical-device company across the country will have to pay 2.3 percent of their gross medical-device sales as part of the tax, which is estimated to generate about $20 billion.

Larson:I would imagine that 2.3% would be a hefty sum for most of these companies. How is the industry in the Boulder Valley responding?

Wood:It’s fair to say, with a mixture of concern, outrage and disbelief. They can’t believe that Congress would pass such a measure. They’re concerned about how it will impact their companies and the industry overall, and they’re angry that they’re having to fight the tax instead of working to develop new products.

Larson:With so much money going to the IRS – what’s the impact going to be? Surely this is going to change the way these companies operate.

Wood:On a larger scale, the Medical Device Manufacturers Association says the tax will “stifle innovation, harm patient care and weaken the position of the United States as the global leader in medical device innovation.” As far as the Boulder Valley, one of the companies we spoke with was Covidien. They employ about 1400 people. They say the tax will cause companies to reduce spending on research and development. Others say that it will also cause companies to forego hiring, and might even prompt some companies to relocate offshore. And industry sources tell us that the tax will impact not only large companies such as Covidien, but also small startups – and we have a lot of those in the Boulder Valley.

Larson:So the industry is against the measure. What do they hope to accomplish?

Wood:One word: repeal. We spoke to the head of the Colorado Bioscience Association, which is closely following the tax, and she told us that there’s a movement in Congress to repeal the tax before it takes effect. Local companies would be relieved if that happens, but frustration will continue.

Larson: Why is that?

Wood:Just take a look at what the entire medical-device industry is focused on now: repeal of a new federal tax that they believe was unwise and ill-considered to begin with. They would much rather be focused on developing new products and growing their businesses, rather than on fighting a federal tax. And, unless the tax is repealed soon, many will have to budget this fall based on having to pay the tax. So they really regard this whole discussion as a drag on the industry, and a drag on the economy.

Larson:Chris Wood is the publisher of the Boulder County Business Report.

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