Amendment to Small Business Bill Would Repeal 3% Withholding Requirement

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Two 3% withholding relief bills have been combined into one amendment to a small business bill currently being debated in the Senate.

Sens. David Vitter (R-LA) and Scott Brown (R-MA) combined their dueling repeals of the 3% withholding tax, set to go into effect on most government contracts in 2012, to create Amendment 212 to S. 493, the Small Business Innovation Research (SBIR) and Small Business Technical Transfer (STTR) Reauthorization Act. The amendment would use Brown's template for funding the 3% repeal by rescinding $39 billion in funds appropriated but unspent by government agencies excluding the Departments of Defense and Veterans Affairs.

The 3% withholding requirement was originally enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA), which was signed into law in 2006. It was originally scheduled to go into effect on Jan. 1, 2011, but was delayed to Jan. 1, 2012 in 2009 by the American Recovery and Reinvestment Act (ARRA). Should the requirement go into effect, most transactions for goods and services with a government entity would be subject to a 3% withholding tax, kept by the governmental entity in question.

NACM has fought the enactment of this provision, which will fall disproportionately on smaller businesses, since its introduction. As a member of the Government Withholding Relief Commission (GWRC), NACM has lobbied for a full repeal and hopes Congress acts quickly to remove this unfair and potentially harmful provision from the tax code.

"The withholding is a flat percentage of revenues from government payments, bears no relationship to companies' taxable incomes and will restrict cash flow needed for day-to-day operations and investments," said the GWRC in a recent letter supporting Amendment 212. "In addition, the administrative and capital investment costs that compliance with 3% withholding will impose on businesses and governments will be substantial, and the mandate will be exceedingly complicated to implement."

Stay tuned to NACM's eNews and Credit Real-Time Blog for any further updates.

Jacob Barron, NACM staff writer

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