ABC Aug. 8 filed comments with the Internal Revenue Service (IRS) suggesting changes to the proposed rulemaking on the 3 percent withholding tax, which requires 3 percent to be withheld on all payments for goods and services made by federal, state, and local governments with total expenditures of $100 million or more
beginning Jan. 1, 2013.
While the notice of proposed rulemaking required comments to focus on how to most effectively implement this rule, ABC continues to advocate for full repeal of the 3 percent withholding tax.
In its comments, ABC strongly encouraged the IRS to implement the rule in the least burdensome way possible including:
- Exempting all credit card payments;
- Exempting pass-through entities, such as S-Corporations and partnerships; and
- Raising the dollar threshold for those transactions subject to the withholding from $10,000 to at least $100,000.
ABC pointed out in its comments that existing law already requires merchants to report all credit card transactions to the IRS, including those providing goods and services to the government, making the 3 percent withholding tax unnecessary on these transactions.
In addition, ABC noted that applying the rule to S-Corporations, which are how many construction companies are structured, could potentially cause numerous problems, including the withdrawal of the corporation’s surety capacity.
As a result of its concerns, ABC formally requested a hearing to allow stakeholders to express concerns and provide recommendations.
For more information on the 3 percent withholding tax, visit the tax section of ABC’s website.