May 26, 2011
Associated Builders and Contractors (ABC) issued the following statement May 26 on a hearing by the U.S. House of Representatives Small Business Committee Subcommittee on Contracting and Workforce titled “Defer No More: The Need to Repeal the 3 Percent Withholding Provision.”
The committee examined the effect of Section 511 of the Tax Prevention and Reconciliation Act of 2005, which will require federal, state and local governments to withhold 3 percent from all payments for goods and services purchased from small businesses, including construction contractors.
“The time has come – and gone – to stop using the 3 percent withholding provision as a budget gimmick,” said ABC Vice President of Federal Affairs Geoff Burr. “There is still no equitable, practical, or cost-effective way to implement this new requirement and it should be repealed immediately.
“A construction contractor facing this mandatory 3 percent withholding on government contract payments would include in their bid an estimated cost of capital to account for this additional cash flow burden,” said Burr. “In effect, this would serve as a levy on taxpayers by increasing the cost of construction of public facilities and services.
“Further, there will be increased costs to federal, state and local governments to implement and regulate the 3 percent withholding provision,” said Burr. “These higher costs will only mean additional budget constraints and potentially additional taxes at all levels of government.”