The Mechanical Contractors Association of America (MCAA) has renewed its efforts to gain repeal of the 3 percent public contract payment tax withholding law set to take effect January 1, 2013. On May 26, MCA of Eastern Pennsylvania President Jim Gaffney, owner of Goshen Mechanical Contractors, Inc. in Malvern, PA, represented MCAA and the Quality Construction Alliance (QCA) at a hearing of the House Small Business Committee’s Subcommittee on Contracting and Workforce. The topic of discussion was, “Defer No More: The Need to Repeal the 3% Withholding Provision.”

Gaffney urged the committee to pass H.R. 674, which would repeal the tax. Gaffney, whose firm is among the small businesses that would be impacted by the tax, shared the prime and subcontractor perspective, noting that in construction, “the 3% withholding could be larger than the entire profit margin on some jobs, and would impede cash flow and viability for small companies doing government work.”

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Noting MCAA’s prominent role in the broader Government Withholding Relief Coalition’s persistent efforts to gain Congressional recognition, Gaffney said, “the 3% withholding policy should be abandoned before further public agency resources are shifted from procurement functions to help the Internal Revenue Service collect taxes.” MCAA has consistently pressed for repeal, beginning in 2007 at the first Small Business Committee hearing on the tax.

At IRS hearings in 2008, MCAA pressed for recognition of Prompt Payment Act issues in the new payment restriction, limitations on the amount of the prime contractor invoices that would be subject to the 3 percent withholding, and further safeguards against flow-down of the withholding to subcontract payments. MCAA gained restrictions on subcontract withholding in the most recent IRS regulation, but there is no limitation on excluding subcontract amounts from the base of the prime contractor’s invoice.

Last year, MCAA was instrumental in obtaining a Senate Finance Committee request of the Congressional Budget Office to reassess the tax savings the measure would return in light of supervening laws and regulations put into effect to stem public contractor tax avoidance since the 3 percent repeal passed into law in 2006. At the hearing and the press conference that followed, Gaffney and a bipartisan group of lawmakers on the Small Business Committee pledged renewed efforts to press the House Ways and Means Committee to back a very urgent push for repeal this session of Congress. The pending 2013 effective date of the law is having an impact on the market for public contracts and agency spending as agencies gear up for eventual implementation.

The Government Withholding Relief Coalition also is building support for a nationwide business and government agency push for repeal, much like the 1099 tax reporting repeal measure earlier this year.

MCAA is urging its members to join the repeal effort by signing on to a nationwide letter of support at www.repealwithholdingnow.com