Reid, McConnell

March 2, 2010

The Honorable Harry Reid

Majority Leader

United States Senate

Washington, DC 20510

The Honorable Mitch McConnell
Minority Leader
United States Senate
Washington, DC 20510

Dear Leaders Reid and McConnell:

The Government Withholding Relief Coalition and its member organizations strongly urge you to repeal the 3% tax withholding law this year. This law, which was enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), mandates that federal, state, and local governments withhold 3% of nearly all of their contract payments, Medicare payments, farm payments, and certain grants. Compliance with this law will impose significant, unnecessary financial burdens on both the public and private sectors, and the Coalition stands ready to work with you to improve tax compliance for companies receiving federal dollars while also repealing the onerous 3% withholding law.

The Administration recently proposed two such methods which obviate any rationale or need for retaining the withholding mandate and will be far more cost-effective for the government. On January 20, 2010, the Administration released a memo requiring the Internal Revenue Service to review the certifications of non-delinquency in taxes that are required on all federal contracts. In addition, the Office of Management and Budget, working with other agencies, is to develop recommendations to prevent companies with serious tax delinquencies from receiving contracts and to make contractor certifications more easily available.

Also, included in the Department of the Treasury's Green Book (page 101) that was released with the President's Budget is a proposal to allow information reporting on federal non-wage government payments. This proposal would enhance transparency and therefore increase tax compliance without imposing an enormous burden on the government sector.

These two proposals directly address the real concern about companies not paying legitimate taxes and still receiving federal monies, and they are a much better approach than the costly, broad brush mandate of the 3% withholding law. The withholding is already proving costly, and such costs will increase exponentially as the implementation deadline moves closer. While this requirement is not scheduled to go into effect until January 1, 2012, businesses and governmental entities are spending funds now in preparation for implementation due to major system and regulatory changes that have to be made well in advance of 2012. As an example, the Department of Defense estimated in a 2008 report that it will cost the Department more than $17 billion in the first five years to comply with the 3% withholding requirement. While only a small portion of total compliance costs for all levels of government, it nonetheless far exceeds any projected revenue gains from increases in tax compliance. Moreover, imposition of this requirement comes at a time when neither the public nor private sector can afford to be burdened with unnecessary costs at the expense of providing government services and investing in jobs.

We strongly believe that private entities providing goods and services to the government should comply
with federal, state, and local tax requirements—companies that do not comply have an unfair competitive advantage over law-abiding contractors that pay their taxes. However, withholding on government payments is not the answer. We believe there can be a more reasonable approach that ensures tax compliance, but does not place undue burden on companies or federal, state, and local government agencies.

The Coalition believes that the concepts in the Administration's new directive and budget proposal described above represent a more measured, responsible approach to accomplishing the aims of the 3% withholding law without the enormously costly and resource-intensive efforts necessary to comply with it. We look forward to being an active partner and contributor to developing a cost-effective means to increase tax compliance and repeal the 3% tax withholding law.

Sincerely,

Government Withholding Relief Coalition

Aeronautical Repair Station Association
Aerospace Industries Association
Air Conditioning Contractors of America
Air Transport Association
America's Health Insurance Plans
American Bankers Association
American Clinical Laboratory Association
American Concrete Pressure Pipe Association
American Congress on Surveying and Mapping
American Council of Engineering Companies
American Farm Bureau Federation
American Heath Care Association
American Institute of Architects
American Logistics Association
American Moving and Storage Association
American Nursery and Landscape Association
American Road & Transportation Builders
Association
American Shipbuilding Association
American Society of Civil Engineers
American Subcontractors Association
American Supply Association
American Traffic Safety Services Association
American Trucking Associations
Armed Forces Marketing Council
Associated Builders and Contractors
Associated Equipment Distributors
Association of National Account Executives
Coalition for Government Procurement
Colorado Motor Carriers Association
Computing Technology Industry Association
Construction Contractors Association
Construction Industry Round Table
Construction Management Association of
America
Design Professionals Coalition
Edison Electric Institute
Electronic Security Association
Engineering & Utility Contractors Association
Federation of American Hospitals
Financial Executives International's Committee
on Government Business
Financial Executives International's Committee
on Taxation
Finishing Contractors Association
Gold Coast Hispanic Chamber of Commerce
Government Finance Officers Association
Independent Electrical Contractors, Inc
International Council of Employers of
Bricklayers and Allied Craftworkers
International Foodservice Distributors
Association
International Municipal Lawyers Association
Management Association for Private
Photogrammetric Surveyors
Mason Contractors Association of America
Mechanical Contractors Association of America
Medical Group Management Association
Messenger Courier Association of the Americas
Miami Dade County
Modular Building Institute
National Association for Self-Employed
National Association of Counties
National Association of Credit Management
National Association of Manufacturers
National Association of Minority Contractors
National Association of State Procurement
Officials
National Association of Wholesaler-Distributors
National Beer Wholesalers Association
National Defense Industrial Association
National Electrical Contractors Association
National Electrical Manufacturers Association
National Emergency Equipment Dealers
Association
National Federation of Independent Business
National Institute of Governmental Purchasing
National Italian-American Business
Association
National League of Cities
National Precast Concrete Association
National Office Products Alliance
National Roofing Contractors Association
National Small Business Association
National Society of Professional Engineers
National Society of Professional Surveyors
National Utility Contractors Association
National Wooden Pallet and Container
Association
North-American Association of Uniform
Manufacturers & Distributors
North Coast Builders Exchange
Office Furniture Dealers Alliance
Oregon Trucking Association
Plumbing-Heating-Cooling Contractors -
National Association
Printing Industries of America
Professional Services Council
Regional Legislative Alliance of Ventura and
Santa Barbara Counties
Santa Rosa Chamber of Commerce
Security Industry Association
Sheet Metal and Air Conditioning Contractors
National Association, Inc.
Small Business & Entrepreneurship Council
Small Business Legislative Council
TechAmerica
Textile Rental Services Association of America
The Associated General Contractors of America
The Association of Union Constructors
The Distilled Spirits Council of the U.S.
The Financial Services Roundtable
U.S. Chamber of Commerce
United States Telecom Association
Veterans Entrepreneurship Task Force
Women Impacting Public Policy