On September 12 MAPPS Executive Director John Palatiello was one of five witnesses who testified
at a public hearing by the Internal Revenue Service (IRS) entitled,
"Withholding on Payments by Government Entities to Persons Providing
Property or Services.” The hearing was to address legislation enacted by
Congress calling for a 3 percent withholding on all federal contracts,
including mapping, surveying and geospatial activities, with the IRS in
charge of implementing regulations on section 3402(t) of the Internal
Palatiello reiterated MAPPS opposition to the 3 percent withholding. He
said even with a recent change in the Federal Acquisition Regulation
(section 52.232-10), A/E firms, including those in surveying and
mapping, still face a potential retainage or withholding of 13 percent
on Federal contracts, an amount often in excess of the net profit. He
said small business cannot afford to be in the banking business, making
interest free loans to the federal government. He also said the
withholding will drive firms out of the Federal contracting market at a
time when we should be encouraging more competition.
As a means to help business, Palatiello urged that all long-term
contracts be grandfathered. In particular, an indefinite
delivery/indefinite quantity (ID/IQ) contract should be grandfathered,
and the 3%withholding should not apply to any task order entered into or
against the ID/IQ contract after the effective date of the IRS
regulation. The same policy should apply to other types of contract
vehicles, such as GSA Schedule and Basic Ordering Agreements (BOAs), he
told the IRS.
In 2009, MAPPS testified
at an IRS oversight hearing opposing 3 percent withholding.
MAPPS is a member of the Government Withholding Coalition (the
Coalition), led by the U.S. Chamber of Commerce. The Coalition was
formed to seek repeal of Section 511 of Public Law No. 109-222, which
mandates the sweeping new requirement that federal, sate and local
governments withhold 3% of their payments for goods and services (the
government withholding regime).
Currently there is bi-partisan support in Congress to repeal the withholding. H.R. 674
and S. 164
intended to "amend the Internal Revenue Code of 1986 to repeal the
imposition of 3 percent withholding on certain payments made to vendors
by government entities.” The bills are cosponsored by a bipartisan group
of 250 members of the U.S. House of Representatives and 21 U.S.
Senators. This legislation is a priority for the Republican leadership
in the House and is scheduled to be debated this fall. President Obama
has included a delay in the effective date of the withholding in his
recently unveiled jobs package.