In November 2011, NRCA secured a significant legislative victory with repeal of the 3 percent withholding tax on government contracts. The tax was to take effect in 2013 as an enforcement mechanism aimed at achieving better tax compliance among government contractors. Had it taken effect, the withholding tax would have significantly affected the financial viability of many businesses in the roofing industry.
A flawed policy
Originally enacted in 2006 as Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA), Section 3402(t) of the Internal Revenue Code required federal and state agencies and many municipal governments to withhold for tax purposes 3 percent of the value of all contracts worth more than $10,000.
Section 511 was added to TIPRA during closed-door final negotiations between the House and Senate just before TIPRA was enacted in May 2006. The language in Section 511 never received a vote as a provision of an earlier House or Senate legislative package.
Soon after TIPRA was enacted, it was apparent to NRCA and other business groups the withholding tax was flawed. NRCA, as an active member of the Government Withholding Relief Coalition, set out to educate policymakers regarding the negative effects the withholding tax would have on business cash flow and growth potential.
In a series of letters, briefings, hearings, press conferences and private meetings, the coalition stated the 3 percent withholding tax represented nothing more than a no-interest loan to the federal government.
Imposition of the tax would have been particularly harmful for the roofing industry where profit margins on government contracts often can be well below 3 percent. This delay in cash flow would have caused potentially crippling financial obstacles for contractors.
As some lawmakers began to comprehend the effects of the 3 percent withholding tax, efforts to delay its effective date advanced.
In the American Recovery and Reinvestment Act of 2009, the tax's effective date, which originally was set for Jan. 1, 2011, was delayed until Jan. 1, 2012. In May 2011, the IRS again delayed the tax until Jan. 1, 2013.
Seeking repeal
Despite the delays, NRCA and its coalition partners sought full repeal.
Reps. Wally Herger (R-Calif.) and Earl Blumenauer (D-Ore.) introduced H.R. 674, the 3% Withholding Repeal and Job Creation Act, in the House Feb. 11, 2011. Sens. Scott Brown (R-Mass.), Olympia Snowe (R-Maine) and David Vitter (R-La.) introduced similar legislation in the Senate.
On April 13, 2011, NRCA Government Relations Committee Chair Bob Kulp, co-owner of Kulp's of Stratford LLC, Stratford, Wis., also testified before the House Committee on Small Business in support of full repeal.
In his testimony, Kulp stated "withholding could eliminate contractors' profits on many projects, thus severely limiting the ability of contractors to grow their businesses and create jobs."
The contracting community continued to work during much of 2011 to garner congressional support for the bills, eventually securing the number of co-sponsors needed to draw the attention of party leaders. And during the months before the final votes for repeal, NRCA members advocated for repeal of the tax through grassroots contacts to their senators and representatives.
In August 2011, House Majority Leader Eric Cantor (R-Va.) announced H.R. 674 would receive a vote as part of the House Republican jobs agenda.
On Oct. 27, 2011, the House went on to pass H.R. 674 by a vote of 405-16. This overwhelming bipartisan vote and President Obama's subsequent announcement that he supported full repeal led to the bill's final passage.
On Nov. 10, 2011, the Senate passed H.R. 674 by a similarly bipartisan vote of 95-0, and on Nov. 21, President Obama signed H.R. 674 into law. This was a significant victory not only for NRCA, who actively had advocated for the tax's repeal since it became law, but also for the contracting community.
Moving forward
With repeal of the 3 percent withholding tax accomplished, NRCA will continue working in Washington, D.C., to fight legislation and regulations harmful to the roofing industry while advocating for government policies that allow roofing professionals to grow their businesses.
Brandon J. Audap is NRCA's director of federal affairs.
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