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Ayotte says medical device tax a crusher

Union Leader Correspondent

February 07. 2014 10:23PM

MERRIMACK — U.S. Sen. Kelly Ayotte said Friday that the Affordable Care Act's Medical Device Tax is hurting New Hampshire companies, including a local business that has seen a direct impact.

"This is a tax that unfortunately is a 2.3 percent tax on revenue, so it is not a tax on profit," Ayotte said while touring McClellan Automation Systems on Continental Boulevard. "This hurts innovation, and has a negative impact on investments and research and development."

The tax, Ayotte said, is making the nation less competitive while slowing the economy, reducing jobs and stalling company growth.

Ayotte is co-sponsoring legislation to repeal the Medical Device Tax, a $29.1 billion excise tax that took effect last year as part of the Affordable Care Act. The proposed legislation, the Medical Device Access and Innovation Protection Act, was introduced one year ago and is still sitting in the Senate Finance Committee.

The bill — if approved — would amend the Internal Revenue Code to repeal the excise tax on medical device manufacturers and importers.

Without the repeal, companies such as McClellan Automation Systems will continue to be hard hit by the tax, according to Jim McClellan, president of the local business that employs about 140 workers.

"If we don't repeal this tax, in five to seven years I believe that medical devices will be leaving the country," said McClellan. "I see the medical device industry going away, and that would be awful for our country."

Previously, about 95 percent of McClellan's business was related to medical devices. The Medical Device Tax, however, has forced McClellan to diversify, meaning less than 25 percent of his company is now involved with medical devices.

"Obviously, that impacts our employees," he said. Research and development in the medical device industry is down by nearly 40 percent throughout the nation since 2010 or 2011, said McClellan, adding that reduction dramatically decreases the number of products that are coming to the market in America.

Ayotte echoed his concerns, stressing that if new and innovative medical devices are not being built here, they will be built overseas. In terms of health care for Americans, that could be influential, she said.

"Right now, what we need is action," said the senator, who believes the repeal has bipartisan support if it can finally get a vote. "It is time for them to bring this up."

During a previous budget resolution that was not voted into law, the Medical Device Access and Innovation Protection Act received major support from lawmakers, said Ayotte.

She said her colleagues from all over the country are hearing the same concerns about the tax as she has been hearing from New Hampshire companies, including Smiths Medical in Keene, Atrium Medical in Hudson and Medtronic, formerly Surgical Technologies of Portsmouth.

"Jim is an example of the American dream," said Ayotte.

McClellan is trying to move forward despite the tax hardship, and last year initiated a private incubator initiative that helps advance struggling businesses — even competitors — to create more motivational workers. Entrepreneurs who may have a great product with a patent, but haven't been able to reach the finish line, are being assisted by McClellan Automation Systems to get their product to the market and sold.

"We have a skillset of helping these people," he said. "We help them be successful, and we help ourselves because we become partners or owners in their company."

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