House Takes Action to Repeal 3 Percent Withholding Requirement
October 20, 2011
On October 13, the House Ways and Means Committee favorably approved H.R. 674, a bipartisan bill that would repeal the requirement for certain federal, state, and local agencies—including public colleges and universities— to withhold 3 percent on payments for the purchase of goods and services. The provision was enacted as part of the 2005 Tax Increase Prevention and Reconciliation Act in an effort to prevent tax debt or tax avoidance by individuals and companies receiving payments from government purchasers. The legislation is expected to be taken up by the full House of Representatives the week of October 24. H.R. 674 has bipartisan support with 262 co-sponsors; similar legislation passed the Democratic-led House in 2009.
The federal government has delayed implementation of this requirement several times. Upon its effective date, currently January 1, 2013, public colleges and universities with more than $100 million in annual expenditures will be required to withhold 3 percent of payments made for the purchase of goods and services in excess of $10,000. NACUBO estimates that more than 170 public institutions will be impacted.
Full repeal of the 3 percent withholding requirement is estimated to cost $11.2 billion over 10 years. Complicating the issue for House Democrats, it is likely that House Republicans will attempt to offset the cost with a proposal that would change the definition of income under the new health care law, and ultimately significantly reduce the number of households eligible for subsidized health insurance under the new law. This proposal was also passed by the House Ways and Means Committee on October 13 and is estimated to raise $13 billion.
Despite the anticipated House action, there is little expectation that the Senate will take up the legislation anytime soon. Senate Republicans recently called for repeal of the 3 percent withholding requirement in their proposed jobs bill and other legislation. However, Senate Finance Committee Chairman Max Baucus (D-MT) has been a vocal advocate of curbing tax avoidance and has thus been reluctant to support full repeal of this law in the past. Senator Baucus is also currently focused on his work as a member of the Joint Select Committee on Deficit Reduction—the so-called supercommittee. While the Democratic majority is unlikely to take up the repeal legislation, in the past, they have supported efforts to delay implementation.
NACUBO raised concerns about the withholding requirement in a letter to members of the supercommittee and Senate Majority Leader Harry Reid (D-NV), and has joined with businesses and other affected entities on Capitol Hill in calling for full repeal. If you or your institution’s governmental relations staff would like to discuss this issue with your Senators and Members of Congress, NACUBO has prepared talking points for your use.
Administration Supports Delay of 3% Withholding (March 25, 2011)
Director, Federal Affairs