The Saga Continues . . . Taxpayers are again challenging the Pennsylvania sales tax treatment of MRI machines. However, this time the taxpayers are arguing that the MRI machines are exempt manufacturing equipment, rather than property permanently affixed to real property.

In 2011, the Pennsylvania Supreme Court concluded in the Northeastern Pennsylvania Imaging case that the purchase of a magnetic resonance imaging ("MRI") machine is taxable for Pennsylvania sales tax purposes, because an MRI machine is tangible personal property, and does not become a permanent part of the real property when installed in a medical facility. According to the court in Northeastern, MRI machines are "nothing more than cameras."8

Now, in a case pending at Commonwealth Court, a medical practice is arguing that its purchases of MRI and CT machines are not subject to sales and use tax because the machines are used in manufacturing operations. The taxpayer in this new case is relying on a 1974 Pennsylvania Supreme Court decision, in which the court held that the use of cameras and film by a portrait photographer constituted manufacturing for purposes of the sales and use tax exclusion.9

The taxpayer is arguing that the MRI and CT scan process is similar to producing photographs, and that the manufacturing exclusion is broad and is intended to accommodate changes in technology. The commonwealth is arguing that the taxpayer is engaged in providing radiology services (not photography), and that the MRI and CT machines are being used by the taxpayer to provide medical services.

This case is tentatively scheduled for argument in June and could have implications for both sellers and purchasers of MRI and CT equipment and related software.