ITAA opposes withholding tax on government contractors

The Information Technology Association of America has come out against a proposal in Congress that would call for collecting a new withholding tax on government contractors nearly five years sooner than expected.

“This is a non-starter for us,” said Phil Bond, ITAA president and chief executive officer, in a statement, referring to an amendment proposal by Sen. Ron Wyden (D-Ore.) to the tax extension package bill, H.R. 4388.

“We oppose the new withholding no matter when it begins, but an immediate mandate is unrealistic and unworkable,” Bond said in a letter to Sen. Charles Grassley (R-Iowa), chairman of the Senate Finance Committee. “This amendment would require governments and companies to restructure their tax processes in less than 30 days.”

The Wyden amendment would require the government to levy a 3 percent withholding tax on payments to contractors beginning Dec. 31. Congress passed the tax requirement earlier this year, but collection was not scheduled to begin until 2011.

“Regardless of when it is collected, the withholding will be especially harmful to the small, law-abiding, tax-paying businesses by imposing additional and unnecessary tax burdens,” Bond added.

ITAA said companies do not have time to implement the necessary changes to their financial and accounting procedures to accurately account for the withholding. In addition, Bond said, the Internal Revenue Service and state and local government agencies have not begun to prepare for the impact the tax will have on their accounting and recordkeeping systems.

Small businesses in particular would be significantly affected because taking an additional 3 percent could eliminate much of their operating capital, Bond said in the letter.

ITAA also pointed out that recent reports from the Government Accountability Office and the Congressional Budget Office have shown that the alleged gap the withholding tax was designed to address is not widespread.

ITAA is not the only advocacy group to take a stand against the tax proposal.

ITAA and the Coalition for Government Procurement have joined 34 other organizations to form the Government Withholding Relief Coalition to oppose the proposal. Its members include the Aerospace Industries Association, Associated Builders and Contractors, Contract Services Association of America, National Defense Industrial Association, Professional Services Council, U.S. Telecom Association, and the U.S. Chamber of Commerce.

About the Author

David Hubler is the former print managing editor for GCN and senior editor for Washington Technology. He is freelance writer living in Annandale, Va.

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