The Pennsylvania Commonwealth Court (Court) recently concluded that the multi-step process of diagnostic imaging fails to qualify for the manufacturing exemption argued by the taxpayer, Tristan Radiology Specialists, P.C. Under the Tax Code’s definition of “manufacture,” the taxpayer maintained that the equipment’s image-making process constitutes “other operations” in that the imaging process produces a change in the form, composition or character of tangible personal property purchased by the facility for use in producing MRI and CT images, equating it to the process used to produce a photograph from an image captured on film.
The Court found that reliance on the definition of “manufacturing,” which is so broad that, if taken literally as the taxpayer urges, “…virtually any business which saves data or images to a computer and then downloads them to some media – electronic or hard copy – for its own use or that of a client, could arguably qualify as manufacturing.” The Court determined this to be an “absurd result,” which the General Assembly could not have intended. The Court concluded that the taxpayer’s activities fell within the scope of learned professions (61 Pa. Code §31.6) such as theology, law and medicine. It was further concluded that application of Section 52.1 rendered it taxable as medical equipment.
It is interesting to note that the Pennsylvania Department of Revenue has recognized law firms (a learned profession) as being eligible for the manufacturing exemption in relation to certain printing operations performed internally. Perhaps the use of the manufacturing exemption within the medical field is not so farfetched.
The complete Commonwealth Court opinion may be viewed at Tristan Associates.
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