Proposal
Repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005
(TIPRA) (P.L. 109-222 :: H.R. 4297)
Background
In May 2006, TIPRA became law. Section 511 of the act mandates local, state and
federal governments with annual expenditures more than $100 million to withhold
3 percent of payments due to venders for goods and services starting in 2011.
The goal of the provision is to collect underreported tax revenues and increase
tax compliance. It is projected to generate $6 billion in "revenue," which is mostly
because of the acceleration in the collection of tax receipts during the first year
of implementation. In 2012 and beyond, only $200 million is expected to be generated.
Problem
If not repealed, roofing contractors performing government work will face serious
repercussions:
- The 3 percent is taken off the total payment, not the profit a contractor earns
on the project.
- 3 percent is the average profit margin for roofing contractors. As such, Section
511 could have the unintended consequence of eliminating a roofing contractor's
profit margin.
- Although a contractor may collect the remaining 3 percent at the end of the year,
cash-flow and operating capital disruption caused by the withholding will be a tremendous
burden, particularly for small businesses.
- This disruption in operating capital will also negatively affect a company's ability
to become "bonded," which is required to bid on many projects.
- Most companies' accounting systems are not set up to handle amounts withheld from
invoices. Withholdings will also complicate tax filings and determining final tax
liability.
- Many roofing companies will stop bidding on government contracts and those that
do will pass additional costs created by the withholdings along to the government
and, finally, taxpayers.
- The 3 percent withholding rule will start affecting businesses soon because many
government contracts are for five-year terms.
Solution
Repeal Section 511 of TIPRA (P.L. 109-222 :: H.R. 4297) by passing the Withholding
Tax Relief Act of 2007, S. 777 and H.R. 1023.
Contact Nick Tindall, NRCA's director of public affairs at (847) 493-7599 or
ntindall@nrca.net with any questions.
(May 2007)