The 110 member associations, including NOPA, that participate in the Government Withholding Relief Coalition, sent a letter to all members of the U.S. Congress this week asking them to repeal or include a two-year delay of the 3% tax withholding law during the lame duck session.  This tax withholding provision is currently scheduled to take effect on January 1, 2012. 

The 3% withholding law, enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) as section 3402(t) of the Internal Revenue Code, requires that federal, state and local governments withhold 3% of nearly all of their contract payments.  Since enactment of this law on May 17, 2006, there have been a number of legislative and regulatory actions that together address issues associated with tax compliance and transparency by companies receiving government payments.  For this reason, the Coalition believes the law is unnecessary to meet congressional concerns that prevailed when the law was passed in 2006.

The Coalition argues that compliance with this law will impose significant, unnecessary financial burdens on both the public and private sectors, since the withholding is a flat percentage of revenues that bears no relationship to companies’ taxable incomes and will restrict cash flow needed for day-to-day operations and investments, particularly in the current challenging economic environment.  Small companies doing business with government agencies at all levels will be most severely impacted and will need to expend resources well before the January 2012 implementation date to make computer system and other process changes to support required withholding, reporting and financial reconciliation.

The Coalition also is asking Congress to require an independent entity to assess the costs of the 3% withholding regime for federal, state and local governments and the companies that provide services to them.

For more information, visit www.WithholdingRelief.com.