|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Corporate/Personal Income Tax
This Technical Information Release ("TIR") explains the medical device tax credit provisions contained in chapters 144 and 145 of the Acts of 2006. Chapter 144 amends G.L. c. 63, by adding § 31L. Chapter 145 amends G.L. c. 62, by adding § 6½. Both provisions were signed into law and became effective on July 8, 2006.
II. Taxpayers Eligible to Claim the Credit
Pursuant to chapter 144 of the 2006 Act, a medical device company that has a usual place of business within Massachusetts where medical devices are developed or manufactured is allowed a credit against its G.L. c. 63 excise. "Medical device company," as that phrase is used in chapter 144 means a domestic corporation organized under G.L. c. 156B or c. 156D, a limited liability company organized under G.L. c. 156C and subject to G.L. c. 63, or a foreign corporation subject to G.L. c. 63. Similarly, pursuant to chapter 145 of the 2006 Act, a medical device company that has a facility located in Massachusetts where medical devices are developed or manufactured is allowed a credit against its G.L. c. 62 tax liability. "Medical device company" as that phrase is used in chapter 145 means a sole proprietorship, partnership, limited liability company, corporate trust, corporation or other business the income of which is taxed directly to the business or its owners under G.L. c. 62.
"Medical device" as that term is used in both of the above chapters of the 2006 Act is defined as:
an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related article, including a component part or accessory, which is recognized in the official National Formulary or the United States Pharmacopeia, or any supplement thereto, intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment or prevention of disease in humans or other animals and which does not achieve any of its primary intended purposes through chemical action within or on the body of a human or other animal and which is not dependent upon being metabolized for the achievement of its primary intended purposes.
St. 2006, c. 144 and c. 145.
III. Amount of the Credit
For taxable years beginning on or after January 1, 2006, the credit is equal to 100% of the user fees actually paid to the United States Food and Drug Administration ("USFDA") by a medical device company during the taxable year for pre-market submissions ( e.g., applications, supplements, reports, or 510(k) submissions) to market new medical devices or upgrades, changes or enhancements to existing medical devices, developed or manufactured in Massachusetts. In allowing the credit, a new medical device, or an upgrade, change, or enhancement to an existing medical device, is "developed or manufactured in Massachusetts" if more than ½ of the development or manufacturing costs associated with the medical device, or the upgrade, change or enhancement, are incurred in Massachusetts. "User fees," as that phrase is used in this TIR, means the fees required to be paid to the USFDA when submitting certain medical device applications and supplements to them, as established under §738 of the Medical Device User Fee and Modernization Act of 2002, P.L. 107-250. That section was codified under the Federal Food, Drug, and Cosmetic Act at 21 U.S.C. A. § 379j  and adjusted under the Medical Device User Fee Stabilization Act of 2005, P.L. 109-43. 
IV. Unused Credit May Be Transferred
Although neither chapter 144 nor chapter 145 contains a provision that would allow for any unused credits to be carried forward by a medical device company, each provides that any unused credits may be transferred to a purchasing company in exchange for private financial assistance to be provided by such company.  Credits transferred to a purchasing company may not be resold. No credits may be transferred unless the purchasing company provides financial assistance in an amount at least equal to 75% of the medical device tax credit amounts eligible for transfer. The private financial assistance is to be used to fund certain expenses incurred in connection with the Massachusetts operations of the medical device company, including expenses associated with fixed assets such as construction, acquisition, and development of real estate, as well as expenses for materials, start-up, tenant fit-out, working capital, salaries, and research and development . In the event a medical device company receives private financial assistance other than in cash, e.g., payments in kind, or otherwise, it must satisfy the Commissioner of Revenue that both the 75% test and the use test above are met.
V. Application Form and Certificate to Use Credit
A medical device company is entitled to use the credit only after it (1) files with the Department of Revenue ("Department") a Form MDCA, Medical Device Credit Application, and (2) receives back from the Department a Form MDCC, Medical Device Credit Certificate.
The Department will review each application and, if satisfied, will issue Form MDCC to the medical device company reflecting the credit amount eligible for use and a certificate number. The certificate number must be included on each tax return filed by a medical device company in which a medical device tax credit is claimed.
VI. Application Form and Certificate to Transfer Credits
A medical device company is entitled to transfer unused credits only after it (1) files with the Department a Form MDCTA, Medical Device Credit Transfer Application, and (2) receives back from the Department a Form MDCTC, Medical Device Credit Transfer Certificate.
The Form MDCTA sets forth (1) the medical device tax credit amounts eligible for transfer, (2) the identity of the purchasing company, (3) the use(s) to which the medical device company intends to put the private financial assistance provided, (4) the amount and type of financial assistance provided, and (5) the date(s) the financial assistance was provided. Additionally, it contains a statement, to be signed under the pains and penalties of perjury by an authorized representative of the medical device company, and notarized, that the purchasing company has provided the specified financial assistance.
The Department will review each application for compliance with the above requirements. If satisfied, the Department will issue Form MDCTC to the purchasing company reflecting the credit amount transferred and a certificate number. The certificate number must be included on each tax return filed by a purchasing company in which a medical device tax credit is claimed.
The purchasing company must use the credit transferred to it on tax returns filed by it within 5 years of the issuance of Form MDCTC, after which period the credit will expire. Pursuant to chapter 144 of the 2006 Act, the credit cannot be used to reduce a purchasing company's excise due under G.L. c. 63 §§ 32(b) or 39(b) to below $456. To a similar effect, pursuant to chapter 145, the credit cannot be used to reduce a purchasing company's income tax liability under G.L. c. 62 below zero.
VIII. Medical Device Tax Credit Regulation
Subsequent to the issuance of this TIR, the Department intends to propose a regulation relative to the administration and enforcement of G.L. c. 63, § 31L and G.L. c. 62, § 6½.
Commissioner of Revenue
December 7, 2006