Government contractors have one more thing to be thankful for this week: squashing a much-hated tax law before it could get out of the gate.
|The Obama Administration, House and Senate all opposed the measure, which had been signed by President George W. Bush as a revenue raiser.|
On Monday (Nov. 21), President Obama signed H.R. 674, which repeals part of a 2006 law that would have required federal state and local governments to withhold 3 percent of their payments to all vendors for any goods, services or property.
President George W. Bush signed the original Tax Increase Prevention and Reconciliation Act, which would have counted the 3% withholding toward the vendor’s tax liability for that year. The measure would have applied to goods, property and services, including construction. It was seen as a way to ensure that government contractors were paying their taxes.
Implementation of the provision—Section 511 of the tax law had been delayed twice but was set to take effect with the 2011 tax year.
The measure’s many opponents likened it to forcing companies to provide the government with an interest-free loan.
Indeed, by the end, it was hard to find any defenders of the measure.
The House and Senate both unanimously approved the repeal. And their votes followed a strong statement of support by the Obama Administration’s Office of Management and Budget, which said the bill “would reduce a burden on government contractors who otherwise comply with their tax obligations, particularly small businesses.”
The American Subcontractors Association has been working to repeal the measure since the ink dried on it. Contractors said the bill would have reduced their cash flow by hundreds of millions of dollars each year and would have increased the costs of public construction.
ASA members have visited congressional offices, made phone calls and written emails to support repeal.
Meanwhile, when the Internal Revenue Service proposed a rule to implement withholding, ASA convinced the agency to exempt payments from prime contractors to subcontractors from withholding.
|Construction owners and taxpayers would have footed the tax bill, says ASA president Kerrick Whisenant.|
“Repeal of 3 percent withholding is a major accomplishment, removing an obstacle to the construction industry recovery that our industry and our country couldn’t afford,” said 2011-12 ASA President Kerrick Whisenant.
“Public construction owners and, ultimately, taxpayers would have had to foot the bill for administering withholding. Construction contractors can now turn their full attention to growing their businesses — instead of preparing to manage a 3 percent reduction in cash flow.”