08/10/2006

ACEC joins coalition in opposing new fee withholding law

Bill introduced to repeal little-noticed provision

Most government agencies would be required to withhold three percent from all payments for goods and services to secure payment of federal income taxes under a little-noticed provision slipped into tax legislation passed by Congress last year.

A broad coalition of government and business groups, including ACEC, is seeking repeal of Section 511 of the ironically titled Tax Increase Prevention and Reconciliation Act of 2005. This section requires that, beginning in 2011, any government agency with contracting expenditures of more than $100 million annually must collect a three percent withholding tax on payments to contractors.

Fortunately, there is hope the withholding tax will be repealed before it ever takes effect. U.S. Senator Larry Craig (R-ID) has introduced legislation (S. 2821) to repeal Section 511.

In a letter expressing support for Craig’s legislation, national ACEC President David Raymond said the Council “is deeply concerned about the impact and the unintended consequences of this provision on all companies that receive contracts or other forms of payment from the government.”

Raymond noted the withholding tax has “no relationship to a company’s taxable income and will impinge on company cash flows need for day-to-day operations. In addition, the costs to governments at all levels to adminster the program will be substantial and the process exceedingly complicated to implement.”

The Government Withholding Relief Coalition seeking repeal of Section 511 includes ACEC, the U.S. Chamber of Commerce, the National Association of Counties and many other major associations representing government and private industry.