Eagerly anticipates House passage

The National Association of Credit Management (NACM) congratulated the Senate today on their unanimous approval last week of legislation that would repeal the 3% withholding tax. The bill, H.R. 674, is now pending the House, where it is expected to be approved shortly.

If a repeal is not signed into law, then a 3% withholding tax would be levied on the value of most local, state and federal government contract. Luckily, it seems that Congress has finally summoned the political will necessary for a full repeal of this widely unpopular tax, instead of more stopgap delays in the tax's implementation.

"NACM and its constituency of trade credit grantors have fought for 3% repeal since the tax was enacted in 2006," said NACM President Robin Schauseil, CAE. "It's good to see that Congress has finally realized what these companies have known all along: that cash flow is a business' lifeblood, and that taking away 3% of it to ensure contractor tax compliance would do more harm than good."

Indeed, since the 3% withholding tax was signed into law as part of the Tax Increase Prevention and Reconciliation Act (TIPRA), NACM and its membership has gone to great lengths to impress upon Congress the importance of cash flow and the negative side effects that would grip the nation's economy were the 3% requirement to ever enter into force. "Since the requirement is a flat tax, it would fall heaviest on small businesses, hurting the nation's job creators when they need it least," said Schauseil. "Additionally, although the tax is technically to be borne by prime contractors on a project, any negative effect on those contractors' cash flow is bound to trickle down the supply line, reducing prompt payment to subcontractors, suppliers and any other of the numerous parties typically involved in a government project." The 3% tax would also increase costs to local, state and federal governments, as contractors try to soften the blow of the withholding requirement by increasing their prices, driving up the costs to taxpayers.

"At best, the 3% withholding tax is an unwanted nuisance to the nation's contractors and trade creditors that distracts them from more important work," said Schauseil. "At worst, it's a potentially devastating hit to cash flow that would keep businesses from creating jobs while increasing the cost of government projects, and ultimately the cost to the American taxpayer."

"NACM was thrilled to see the 95-0 Senate vote in favor of H.R.674, and applauds Congress and the President for finally recognizing the dangers of the 3% tax," she added.

For more information on NACM's effort to repeal the burdensome 3% withholding tax, visit the association's advocacy page.



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