Chief Counsel Praises the Repeal of Three Percent Withholding Requirement on Contractors

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Washington, D.C. – Today Chief Counsel for Advocacy Dr. Winslow Sargeant praised Congress’ repeal of the three percent contractor withholding requirement. The requirement would have required federal, state and local governments to withhold three percent of nearly all payments made to contractors, placing a burden on numerous small businesses. By a vote of 95 to 0, the Senate passed the Government Contractor Withholding Repeal Act. The House has already passed a similar piece of legislation. The Office of Advocacy has consistently worked with small businesses for the elimination of this unfair burden. The Chief Counsel called for its elimination in May of this year.

“The repeal of the three percent withholding requirement is a victory for small business,” said Dr. Sargeant. “For small businesses to thrive in government contracting they need an environment that is clear, transparent and predictable.”

The three percent withholding requirement would have adversely affected the accounts all small businesses that provide services to government entities. Most of the small businesses would have had to increase their debt level in order to ensure sufficient cash flows and thus pass these additional expenses on to their government customers. If small firms were unable to secure additional debt, the three percent withholding requirement might force them out of the Federal contracting market.

The three percent provision was included in the Tax Increase Prevention and Reconciliation Act of 2005 in an effort to ensure that individuals and companies that receive new payments from the federal government did not accrue tax debt. The law mandated that federal state and local governments with expenditures of more than $100 million withhold three percent of payments for products and services worth more than $10,000. The requirement was scheduled to take effect on January 1, 2013.

The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. The presidentially appointed Chief Counsel for Advocacy advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policymakers. Regional advocates and an office in Washington, D.C., support the Chief Counsel’s efforts. For more information, visit http://www.sba.gov/advocacy, or call (202) 205-6533.