Coalition urges withholding changes in the withholding tax

Federal officials have introduced a number of new ways to ensure that contractors comply with tax regulations, making a 3 percent flat tax on payments unnecessary, a coalition of business groups argue in a Nov. 11 letter to Congress.

The Government Withholding Relief Coalition, a group of 113 associations, urged the lame-duck Congress to delay tackling the withholding tax for two years, if it cannot simply repeal the measure. Without a delay, the tax goes into effect in January 2012, but the government and businesses will have to begin preparing for the tax next year.

“A delay is urgently needed now to prevent any additional wasteful expenditure of funds and manpower by governments and companies,” the coalition wrote.

President orders clampdown on tax-delinquent contractors

The law requires that federal, state and local governments withhold 3 percent of nearly all of their contract payments, among others. The provision was included in the Tax Increase Prevention and Reconciliation Act of 2005.

However, the government has set up several measures that put more pressure on companies to meet their tax obligations.

For instance, contracting officers are now required to check on a company in the Federal Awardee Performance and Integrity Information System, a public database for compliance issues. In 2008, a final federal acquisition rule took effect requiring contractors to certify that they are current on their federal taxes. In addition, the Central Contractor Registration database has been available to all federal contracting agencies since 2004, and a debt flag was added in 2009.

This year, the Obama administration issued a memo on tax-delinquent contractors, and the president aimed to tighten enforcement of the nondelinquency certification for government contractors.

Congress and the administration are also considering more proposals to help with compliance.

“All these measures taken together pursue the laudable goal of tax compliance in a way that puts the burden of the law and regulation more on the tax avoiders,” the coalition wrote.