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Industry coalition fights tax withholding law.

A coalition of more than fifty industries, ranging from information technology to couriers to farmers, is calling on Congress to repeal legislation that would withhold income taxes from payments to government contractors.

At a March 22 hearing before the House Small Business Committee, the trade associations were joined by groups representing state and local governments, which would also be required to withhold taxes from their contractors under the legislation passed by Congress last year.

Committee Chair Nydia Velazquez of New York said withholding "could be an enormous burden for small business." The committee's senior Republican, Steve Chabot of Ohio, called the requirement "bad law and bad tax policy."

Starting in 2011, the provision of the Tax Increase Prevention and Reconciliation Act requires governments at all levels to withhold 3% of payments to contractors and forward the money to the Internal Revenue Service.

The provision was added to the tax bill by a House-Senate conference committee; neither house of Congress voted on it separately. Velazquez called it a "budget gimmick" designed to speed up tax collections and reduce the federal deficit.

A statement by industry's Government Withholding Relief Coalition said the law will hurt companies' cash flow and cause "substantial" increases in administrative costs for both business and government.

Groups representing state and local governments said many of them would have to install new financial systems to capture withholding taxes. They said the law would turn them into "branch offices for the Internal Revenue Service."

Two members of the tax-writing House Ways and Means Committee have introduced legislation to repeal the withholding requirement. H.R. 1023 is sponsored by Florida Democratic Rep. Kendrick Meek and California Republican Wally Herger.
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Publication:Set-Aside Alert
Date:Apr 6, 2007
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