ITAA praises contractor tax delay

The Information Technology Association of America is cheering a possible one-year delay in the implementation of a tax on government contractors. The House Ways and Means Committee passed a measure that would block the 3 percent tax pending a study of the tax's effect.

"While we continue to push for a full repeal of this egregious and ill-considered withholding requirement, the delay sends a welcome signal that Congress is prepared to reconsider," said Phil Bond, ITAA'a president and chief executive officer. "This withholding will be a default tax on government vendors that punishes the majority of tax-compliant companies for the already illegal acts of a few."

The tax was already planned to not go into effect until January 1, 2011. Under the delay measure, contained in the Tax Collection Responsibility Act, that date will become January 1, 2012. It also requires the Treasury Department to study the impact of the measure.

The tax was established in the Tax Increase Prevention and Reconciliation Act of 2005. According to the law, agencies are to deduct a tax of 3 percent from any payments they make to companies providing goods or services, with a few exceptions.

As a result, companies will have to pay more than they might if the tax were based on net income, according to ITAA. In addition, although the tax won't go into effect for several years, companies with long-term contracts are already having to account for it in predicting their costs, according to the group.