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Indiana mulls industry tax break to counter federal device tax

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Indiana state Rep. Kathy Heuer

An Indiana representative proposes an interesting way around the medical device industry's contentious 2.3% federal excise tax: Make up the difference with a state-level tax credit to help companies balance out the new assessment.

Republican state Rep. Kathy Heuer forwarded the idea of a state tax credit for devicemakers that would specifically counter the extra expense created by the federal tax, at a cost to Indiana of between $3.9 million and $9.7 million annually. As The Indianapolis Star reports, the tax credit would directly benefit companies such as Cook Medical, Biomet and Johnson & Johnson ($JNJ)/DePuy, all of whom employ large workforces in Indiana. Additionally, she'd also expand the state's research and development tax credit--another move that would aid the device industry.

Heuer's proposal is a pragmatic, state-level response to the federal device tax. Many believe that the tax will be incredibly difficult to repeal, especially now that President Barack Obama has come out with such strong support of the measure and its role in helping to pay for the Affordable Care Act. A state-level tax credit would come as device giants such as Boston Scientific ($BSX) and Smith & Nephew ($SNN), among others, have announced plans to eliminate hundreds of jobs in response to the extra expense created by the tax, and it could offer a draw to companies seeking to address the added tax expense beyond slashing jobs.

It's not that efforts to repeal the federal tax are screeching to a halt. On the contrary, a number of industry trade groups and tax-repeal supporters in Congress have revved up a new repeal initiative just in the last few weeks. AdvaMed President and CEO Stephen Ubl explains to The Indianapolis Star that the separate initiatives will work in tandem with each other.

"It is an acknowledgement of the difficulty of moving some of these issues at the federal level but I think they complement one another," he told the newspaper. "A lot of these issues have particular resonance at the state level, where so many jobs are created in this industry."

With that in mind, it will be interesting to see if states such as Massachusetts and Minnesota--which also house major medical device industry clusters--will pursue similar tax credit efforts to counter the national tax.

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