NACo Supports House Bill to Repeal Unfair Withholding Tax Mandate on County Purchases

The National Association of Counties (NACo) has called for enactment of legislation that would repeal a new mandate that state and local governments with annual spending of more than $100 million withhold 3 percent from payments to their vendors for goods and services and send it to the federal government. Repeal of this withholding tax provision, an unfunded federal mandate, is a legislative priority for NACo.

"This new law is absurd," says NACo Executive Director Larry E. Naake. "Unless we can get it repealed, a county employee who buys a $10 screwdriver will have to pay the hardware store $9.70 and send the remainder to the IRS."

Naake says the costs for county governments to comply will be enormous. The law could require the nation's larger counties to reprogram or purchase new accounts payable systems and hire additional staff to comply with its provisions.

H.R. 1023, introduced by Rep. Kendrick Meek (D-Fla.) and Rep. Wally Herger (R-Calif.), would repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005. The provision, effective 2011, was added to the final House-Senate conference version of last year's tax legislation without any consultation with state and local government officials or their national organizations. Members of Congress were not aware of the provision or what it would mean to their districts. The provision was intended to close a $3 billion shortfall as a result of unpaid federal taxes from 27,000 defense contractors who do business with the federal government.

According to Naake, this will be the first time that federal tax withholding and reporting are imposed on the purchase of goods as well as services.

NACo was among more than 50 organizations, including the National Association of State Auditors, Controllers and Treasurers, that sent a letter to Representatives Meek and Herger applauding their leadership and pledging to seek enactment of H.R. 1023.

NACo is the only national organization that represents county governments in the United States. Founded in 1935, NACo provides essential services to the nation's 3,066 counties. NACo advances issues with a unified voice before the federal government, improves the public's understanding of county government, assists counties in finding and sharing innovative solutions through education and research, and provides value-added services to save counties and taxpayers money.