New Massachusetts Law Provides Tax Credits for User Fees

As part of an economic stimulus package signed into law this month by Governor Mitt Romney, Massachusetts' medtech manufacturers are now eligible to receive a 100% tax credit for fees paid to FDA under the product review and approval procedures of the agency's Medical Device User Fee and Modernization Act of 2002 (MDUFMA). The first of its kind, the law goes into effect immediately and applies to all premarket notification (510(k)) and premarket approval (PMA) fees for medical products developed or manufactured in Massachusetts. Under the law's provisions, early-stage medtech development companies that are not yet generating revenues may sell their credits to a third-party manufacturer.

A similar bill that would have granted a 50% user-fee tax credit was approved by the Massachusetts state legislature in 2004, but Governor Romney used his line-item veto power to prevent the bill from becoming law. The legislation was initially developed and proposed by the Massachusetts Medical Device Industry Council (MassMedic; Boston), a statewide trade association representing more than 300 medtech manufacturers, suppliers, and allied firms.

The governor's office had no public comment on why the bill—now with a full user-fee credit—escaped his line-item veto this time. However, MassMedic noted that the bill received widespread backing from legislators, who were eager to support the continued growth and expansion of the medical device industry in Massachusetts. In contrast to 2004, the tax credit was included in both the economic stimulus package and the state's budget for the next fiscal year.

“This law recognizes the value and contribution of the medical device industry to the state's high-technology sector and its overall economy,” says Thomas J. Sommer, president of MassMedic. “We believe it will provide additional incentives for companies to grow and expand their operations here.”

Commenting on the tax credit, Mark Leahey, executive director of the Medical Device Manufacturers Association (MDMA; Washington, DC), said, “Any program or policy that provides relief for medical manufacturers to further advance product innovation, improve quality, and lower costs is very much welcomed by the industry.” MDMA has been at the forefront of the movement to contain annual increases in user fees while monitoring FDA's performance goals in medical device review and approval.

Industry association AdvaMed (Washington, DC) also voiced support for the new Massachusetts law. “This tax credit is an important recognition of the vital contribution the medical technology industry makes to the state's economy,” the association stated. “The investment represented by this law will help Massachusetts device firms remain in the state and expand their operations.”

“We're realistic about this,” says MassMedic's Sommer. “This is not going to lead to a run of medical device companies from other states looking to set up operations here. But it is an important recognition of the value Massachusetts places on the medical technology sector.” Sommer estimates that the tax credit will save medtech companies in the state between $2 million and $3 million.

For smaller development-stage companies looking to sell their credits, the program remains limited to medtech companies filing tax returns in the state. “We're not looking to become the Cayman Islands for the medical device industry,” Sommer says.

This precedent-setting tax credit is expected to be closely watched by other states and regions with key geographic centers of medtech manufacturing.

© 2006 Canon Communications LLC

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