Has the death knell sounded for the 3 percent withholding issue?

Posted by Diane Sears

The debate over 3 percent withholding passed an important hurdle today. A repeal effort won approval from the House Ways and Means Committee, which said the controversial plan would cost the nation jobs. The measure now goes to the House for a vote.

Beginning Jan. 1, 2013, government agencies are supposed to start withholding 3 percent of payments they make to independent contractors and send that money to the U.S. Treasury. The plan has been so contentious, even the IRS and most recently President Obama have taken measures to push it further into the future from the original date it was to have taken effect, which was in 2009.

Repeal efforts have picked up steam this year in the wake of the 1099 provision’s defeat in Congress. The same business groups that opposed expanded 1099 reporting under that provision – including The Institute of Financial Operations and its affiliate International Accounts Payable Professionals – have been pushing for the repeal of the 3 percent withholding measure.

The Institute’s position has been that both of these provisions would cause an incredible burden in additional work for accounts payable professionals and even the IRS, and the extra money they brought in to the U.S. Treasury would not be worth the negatives.

More on this later. Stay tuned! In the meantime, here’s what members of the Ways and Means Committee had to say about today’s proceedings:

House Ways and Means Committee Chairman Dave Camp, R-Mich. – “The committee is building on its pro-jobs record, and I am optimistic that these committee bills, like 1099s, the trade agreements and TAA, will enjoy broad bipartisan support. Repealing the 3 percent withholding rule is a major step toward reducing uncertainty for businesses and allowing job creators to hire.”

Rep. Wally Herger, R. Calif., who introduced the bill (H.R. 647) to repeal the measure – “Today we have taken an important step in doing what Americans have called upon Congress to do: work together in a bipartisan way to encourage job creation. The 3 percent withholding tax stands in the way of jobs because it threatens to constrict the cash flow of thousands of small businesses that provide goods and services to federal, state, and local government agencies. Permanently repealing this tax is an important step toward giving these businesses the assurance that it’s safe to invest, grow, and hire more workers. We’re looking for actions Congress can take to create jobs right now. This is a win-win. I urge all members to support this legislation.”

Institute’s research gains attention from other media

Posted by Diane Sears

Hot off the press, The Institute’s new 2011 E-Invoicing Study, sponsored by Basware, is starting to get rave reviews for the information it provides about electronic transmission of invoices between businesses.

Adoption of e-invoicing still isn’t where it should be in the business world’s quest to cut back on its overuse of paper, and the study’s results support that, says Jason Busch, the founder and lead blog writer at Spend Matters, an online news site for procurement and procure-to-pay professionals. Here’s what he wrote in a blog item posted this week, the first in a series, titled Examining the Reason Electronic Invoicing Will Truly Cross the Proverbial Adoption Chasm:

“Even though the findings could be more positive, there's no need to sugarcoat the current state of adoption in North America. In the forward to the study, Basware's Bob Cohen calls out the sad state of affairs for adoption in general. To wit, ‘Fewer than half of the companies surveyed have e-invoicing in place, and fewer still – less than 20 percent – have full integration of purchasing, accounts payable, and accounts receivable operations. Many of the companies that implement e-invoicing need to improve automation in other areas; nearly half of these companies still use manual methods, printing out e-invoices they receive to process them.’”

Busch says he plans to address the study’s findings further in a series of blog postings that also incorporate results of original research from his own organization. Here’s what he had to say about the report, which was presented by The Institute and one of the associations under its umbrella group, International Accounts Payable Professionals (IAPP):

“…It's probably the best piece of recent survey work out there in terms of electronic invoicing adoption trends and I strongly recommend joining the IAPP to get your hands on this sort of material if you're looking to build a business case internally around P2P – for both procurement and finance.”

Look for much more on e-invoicing from Busch’s organization and from ours. If you have an opinion or any information to contribute, please contact me at diane.sears@financialops.org. I’d love to hear what you’re experiencing with e-invoicing where you work.

Mirror, mirror ... who is the fairest tax topics writer of them all?

Posted by Diane Sears

I’m thinking I might need to stop contributing to this blog. It could be killing me. That’s the message I got from the keynote speaker last Thursday afternoon at the Convey C2 Summit in Washington, D.C.

Lucas and Chip Eichelberger

Well, it wasn't literally that message, but one of the points Chip Eichelberger made during his "Get Switched On!" presentation is that you become what you think about most often - as well as the people you associate with and what you read, listen to, and watch. That means I could very well become a 1099 form. Or even - holy cow! - an IRS agent. I do spend a lot of time writing about these topics.

I know there are plenty of people who work for the IRS who are completely happy with their careers, but I doubt I’d be one of them. I’m betting they’re much more skilled at accounting than I am, and maybe at math in general, and surely at filing their travel expenses. I stink at that – just ask my editor or our CFO. But IRS agents don’t get to interview fascinating people and write about their careers. I wouldn’t trade that for anything.

So maybe instead of taxes, I should write about exotic locations and the beautiful people who live there – financial operations professionals, of course.

While we ponder that, let me tell you about one of the best presentations I heard at the C2 Summit last week, besides Eichelberger’s keynote. Candace Ewell, a director at PricewaterhouseCoopers, gave a 2011 update on what IRPAC is doing to convey to the IRS the interests of professionals in financial operations.

IRPAC is the Information Reporting Program Advisory Committee, which represents the public in giving feedback to the IRS about the agency’s tax and regulatory policies, programs, and procedures. Committee members are tax professionals who serve three-year terms.

Serving on IRPAC takes a lot of time and travel, and you do it on top of your regular job, Ewell said, but it’s exciting and certainly rewarding to represent your colleagues in such an important role. I told her we’ll write more about that later in articles for Financial Operations Matters magazine and the upgraded online news portal we’re launching this fall at The Institute of Financial Operations.

Ewell updated a rapt audience on issues that are hot topics right now for people in accounts payable and other financial operations positions. Among those issues:

• Section 6050W, the law that places the burden of reporting credit card purchases on the banks and other credit card providers, instead of AP departments.

• Section 3402(t), the issue we’ve been covering in this blog about the government’s new requirements for withholding 3 percent of all payments to independent contractors beginning Jan. 1, 2014.

• FATCA, the Foreign Account Tax Compliance Act, which is designed to strengthen information reporting and withholding compliance for payments to or through non-U.S. entities.

Look for us to write more about those issues in the coming months as we follow them along with our readers.

In the meantime, Eichelberger agreed to personally help all of us in the audience change our image. That is a mighty tall order, considering so many of us are self-proclaimed tax geeks. But if we follow his instructions, we can be thin and fit tax geeks.

With the chart he passed out that’s now hanging on my bathroom mirror, I have to look at myself every day and admit it out loud to myself if I don’t put an X on the paper to signify that I worked out on that date. Hmm.

He and his son Lucas also taught us how to say “YES!” with a fist pumping the air, which makes us look like we really mean it. Doing this is much more effective if you have nice muscles.

Here are some other things I learned from Eichelberger:

• Good is the enemy of great. Don’t let yourself get into the habit of being just good.

• We should ask ourselves and the significant people in our lives, “What can I do to be a better (fill in the blank – spouse, parent, teammate, boss, employee, service provider)?"

• Baby steps aren’t the way to go. Gradual change that’s hard to see will make you lose your commitment. Extreme change works much better. Do it now and do it fast.

There was much more. You can read about Eichelberger on his website www.GetSwitchedOn.com. You should also check out another of his sites, www.3percentchoice.com, which is about being one of the 3 percent of people in America who lead a healthy lifestyle. Thankfully, it’s not about the 3 percent withholding issue, and you won’t find anything on there about taxes and 1099 forms. …YES!

Tax code changes make you queasy? You’re not alone

Posted by Diane Sears

Greetings from Washington, D.C. It’s only fitting that this morning’s TV news showed footage of expert climbers evaluating how to repair the Washington Monument, which was damaged last month in the East Coast earthquake. The view from the top could make most people feel uneasy, even on video.

It reminded me of the changes we’re seeing in the world’s tax laws. The pace is dizzying, no matter what your profession. But for people in financial operations who are in charge of keeping up with tax and regulation issues for their organizations, the challenge can be especially daunting.

Brian Provost

At the C2 Summit tax conference this week in Washington, D.C., host company Convey’s CEO Brian Provost spoke Wednesday morning about his take on the changes we encounter every day.

Look at technology. Parents struggle with wondering what age is right for giving your kid a cell phone. Provost said he and his wife gave their daughter one at age 15, with some trepidation. It turned out the device made the entire family’s life easier because everyone could communicate better and coordinate schedules. So his daughter’s younger brother received one when he was 11 – a fact that didn’t go unnoticed by the indignant big sister.

Today, Provost says, parents should just tell their children when they’re born, “Here’s your cell phone number, here’s your Twitter account, and here’s your e-mail address. Go at it.”

Provost spoke about a recent survey Convey sponsored for The Institute of Financial Operations. Full results of the 2011 Tax and Regulatory Study haven’t been made public yet, but he shared some high-level results with the audience of 200 attendees, asking them a few survey questions to see whether their answers would be similar to those of the survey’s respondents.

Do they expect to see tax changes significantly increase their workload in the next one to three years? In a show of hands, nearly every person in the room said yes, compared with 82 percent on the study. Not surprising, Provost said, since attendees were there to learn about tax updates and tips for making their jobs easier.

One answer that did surprise him, Provost said, was to a question about whether the different business units of the participants’ companies issue separate 1099s to a customer or consolidate them into one. Only about half the people in the room and 52 percent of respondents to the survey said they consolidate 1099s.

“There’s an opportunity there to lower risks and lower costs,” Provost said.

Altogether, the 210 attendees representing 16 industries handle 75 million 1099s, Provost said.

They’re dealing with numerous changes, including 56 new provisions at the IRS in the past year. Of those, 42 resulted in additions or amendments to the U.S. Tax Code, and eight required the IRS to establish new operations. Even with a 19 percent increase in personnel, the IRS is struggling to catch up.

“Are the challenges getting easier as we move forward? I don’t think so,” Provost said. “The pace of change is pretty profound right now in tax information reporting, and pretty profound in general in organizations.”

The conference included industry breakouts for professionals in accounts payable, state and local government, financial services, brokerage services, life and annuity insurance, property and casualty insurance, health insurance.

Dyson, Pflieger, and Fox

Wednesday’s lineup also included a skit called “How to Survive an IRS Audit” that offered comic relief while giving solid advice to attendees. The “actors” were finance professionals Debbie Pflieger and George Fox, both from Ernst & Young, and Marianna Dyson from Miller & Chevalier.

Pflieger, who pitched the idea to Convey and wrote the skit, played the naïve AP manager of Trouble Corp. whose honest answers to Fox, playing an IRS auditor, made the audience squirm and sometimes laugh out loud. She told him she didn’t send the IRS 1099s for companies that didn’t have good taxpayer identification numbers, or TINs, because “they would be of no use to you, obviously.”

The biggest laugh came when Pflieger asked why Fox was interested in what her company paid foreign vendors. “Common sense says” the agency wouldn’t need that information, she said.

His retort: “Well, there’s this provision… and it doesn’t rely on common sense.”

During the second half of the skit, Dyson played the tax attorney for Survivor Corp., where Pflieger was hired after losing her job over the poor processes she had overseen at Trouble Corp. Newly educated in the ways of the IRS audit, Pflieger was ready to go head to head with Fox when Dyson advised her to slow down. Just give yes or no answers, or be quiet altogether, the attorney advised.

The second audit went much more smoothly, with Dyson and Fox negotiating about how they were going to handle the audit. Saying there was a Yankees game on and he didn’t want to be there all night, Fox agreed to Dyson’s terms.

If only it were that easy. But the audience learned quite a bit.

One of the “Aha” moments came when Dyson mentioned “Super W8s” and the way AP departments can collect W-8 forms from foreign vendors spanning several years and using one document with specific verbiage added to it. Look for us to write more about that in the coming months – before the IRS changes the rules on it, of course.

Institute brings first financial ops symposium to Canada

The Institute of Financial Operations’ first-ever Canadian Financial Operations Symposium is off to a resounding start at the historic Fairmont Royal York. Accounts payable and accounts receivable supervisors, managers, and directors are among the more than 150 professionals representing financial institutions, communications companies, postal services, retailers, and manufacturers. Attendees are from Alberta, British Columbia, Nova Scotia, Ontario, Quebec, and several U.S. locations.

The information-rich event opened Sunday afternoon with a welcome reception and vendor showcase, at which attendees browsed nearly two dozen service-provider exhibits. Douglas G. Hartsema, chairman of the board, began Monday morning’s program by presenting a memento of appreciation to Fidel Coutou, who led the expansion of The Institute’s conferences program into Canada as vice chair, Canadian Council.

Ed Robinson, business adviser and author, took the general session audience on a journey "From Fighting the Storm to Dancing in the Rain,” before participants set off to targeted sessions in accounts payable, accounts receivable, and procure-to-pay.

Thomas M. Bohn, president and CEO of The Institute, broke away from the symposium to be interviewed on Fox Business News, where he commented on a U.S. IRS proposal to require federal, state, and local governments to withhold 3 percent of payments to contractors. Bohn said the “Swiss cheese tax policy” would have serious impact on accounts payable, accounts receivable, and other financial operations professionals. The IRS was conducting a hearing on the topic today. Click here to see the video: http://tinyurl.com/3pxcnvd


Meanwhile, in Toronto, symposium attendees were looking forward to wrapping up today’s educational sessions with another vendor showcase this evening, and to tomorrow’s general session on Cloud Services and Utility Computing by Bruce D’Sena, as well as additional targeted AP, AR, and P2P sessions.

View today’s conference photos on our Facebook page, and check back on this blog for updates.

Touchdown! President Obama and Congress could score points with real tax reform

Posted by Diane Sears

I’ve asked my friends all day how many of them watched the big showdown on TV last night. Most thought I was talking about the Green Bay Packers trouncing the New Orleans Saints – great game, even though the score ended up a little lopsided at 42-34. What a way to start the football season!

But no, I was referring to President Obama’s address to a joint session of Congress. With unemployment high and his approval ratings low, the president has taken a lot of heat for not somehow finding a way to fix the economy. Yet any discussion about the country’s financial future turns into a political football that pits Democrats and Republicans against each other in a fight to the bitter end. We all remember how ugly things got this summer when our elected leaders rolled around in the mud arguing about the debt ceiling. I kept expecting someone to walk out onto the floors of Congress carrying a tray of Gatorade to cool everyone down.

Anyway, on Thursday night, I sat down with my beer, pizza, and chicken wings to check out the first of the night’s matches. Soon I found myself wondering how the president’s announcement of the $447 billion American Jobs Act will affect people in financial operations.

One thing he said really got my attention. The president vowed to keep pushing for corporate tax reform, and he called our current tax code “a monument to special interest influence in Washington.”

“By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world,” he said. “Our tax code should not give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs right here in the United States of America.”

Well, that sounds like a glimmer of good news. Let’s see how it plays out in Congress … and whether anyone gets taken off the field on a stretcher. Maybe the new jobs bill could carve out a few positions for guys in black-and-white stripes to throw out a yellow flag whenever things get nasty.

How to survive when cash is king? A UK perspective

Check out this blog posting that first appeared on www.accountspayablenews.org. This is from our UK correspondent for The Institute of Financial Operations.

Posted by Ellen Leith

With the current crisis in the Eurozone, a downgraded U.S. credit rating, and the recent riots in the UK, the way ahead looks likely to be beset with obstacles. Even the most optimistic of commentators are considering something which was enthusiastically dismissed for the UK – a double-dip recession. In times like this, what organisations need most of all is a tight control on cash flows. That might sound obvious, but maintaining enough liquidity to sustain growth is what keeps many CFOs awake at night.

For example, with about 40 percent of Britain’s trade in the Eurozone, banks in the UK have billions of pounds worth of exposure to the European financial market, which makes them more reluctant to lend – with potentially catastrophic results for organisations’ cash flows. As Peter Lugli, Ariba’s Senior Director of Financial Solutions, pointed out, this factor is compounded by many companies hoarding cash in an effort to stave off overexposure.

This situation is set within a wider global financial framework, where the new buzzword is “localisation.” Not simply an opposite position to globalisation, but one which draws its focus from the local economy and aims to control risk by doing so, by providing sustainable growth within local markets. In effect, the trend to be looking out for over the next couple of years is a new “third way” of doing business. The old methods of outsourcing business will not be robust enough in the future. It’s not enough to do business in a country where the supply chain is at risk from events you cannot control.

In some cases, it is precisely because of the current market conditions that organisations are looking at improving controls, increasing visibility, and creating strategic alliances with partners and suppliers. In an effort to minimise risk, many organisations have developed better business models. Whereas once upon a time an expanding business might have developed a new department, or bought out a complementary business, these days it’s increasingly likely that an organisation will simply “borrow” its goods, services, or consultancy. A key factor to the ongoing success of these relationships will be whether they are sustained in periods of growth and stability.

According to Lugli, opportunities are out there despite these difficult times. Organisations that are able to recognise them, minimise risks to assets, and explore new ways of doing business will find themselves better placed in 2012-13. For example, accounts payable and accounts receivable departments are finding themselves under more scrutiny now than ever, and are acting as the powerhouse for cash flow within their organisations. As a result, many CEOs are exploring what can be done with the data already being extracted from the accounts payable process, and leveraging that to help improve their organisations’ bottom line.

In the future it’s likely that we’ll see an increasing interdependence of various departments with procurement, AP and AR – and, to some extent, sales, marketing and HR – working ever closer together. With process automation clearing the way for employees to leave behind the more mundane processing and take on more operational tasks, MDs with their fingers on the pulse will use workflow technology throughout these departments to increase controls, highlight risk, and maintain crucial cash flow levels.

Lugli pointed out that with more than 500,000 companies to connect to, the Ariba Commerce Cloud is uniquely placed to help organisations take advantage of the evolving working environment. Being able to take advantage of early settlement discounts, paying suppliers on time, and being able to accurately report to the market replaces corporate uncertainty with predictability.

In a period where there is so much volatility, organisations that are able to demonstrate sustainable growth and are accurate in their reporting methods will win the confidence of partners, suppliers, banks, and investors. Ultimately where there is stability, there is cash – and where there is cash, often there is profit. If AP is able to provide that for an organisation, AP will increasingly find itself in the driving seat. Is your AP department prepared for the changes ahead?

Association magazine brings home 7 awards

Posted by Diane Sears

Charlie Award: Best Column

It’s official: We now need a trophy case. The Institute of Financial Operations has brought home seven additional awards for our magazine, Financial Operations Matters. The counter in our lobby that holds our trophies is starting to look mighty crowded.

This latest batch came from the Florida Magazine Association, which held its annual conference and Charlie Awards gala last week at Disney’s Yacht Club resort. We couldn’t have made such a strong showing without the fine team of staff, contractors, and volunteers who help with each issue of the publication.

Laureen Crowley, our editor in chief, has taken the magazine to new heights in the three years she’s been here, with the encouragement of her boss, President and CEO Thomas M. Bohn. OK, now that I’ve buttered up my supervisors, do you think they’ll pull out the corporate credit card for something in a fine mahogany or walnut with bowed glass on the sides so you can see the trophies from all angles?

Charlie Award: Service Feature

Check out these latest awards:

• Charlie Award (first place) – Association Column – “In Touch,” a compilation of columns by Chrys Olson, who is a longtime member of International Accounts Payable Professionals and serves on the magazine’s Editorial Advisory Committee
• Charlie Award (first place) – Service Feature – “Small Details, Big Picture” by Diane Sears, the cover story for the November-December 2010 issue, which focused heavily on tax and regulatory issues
• Silver Award (second place) – In-Depth Reporting – “Wild Ride” by Diane Sears, an article in the March-April 2011 issue about the battle for repeal of expanded 1099 reporting requirements
• Bronze Award (third place) – In-Depth Reporting – “What’s Looming on the Horizon? AR audits” by Matthew R. Gomez, an article in the September-October 2010 issue
• Bronze Award (third place) – Best Overall Magazine for an Association
• Bronze Award (third place) – Best Written Magazine for an Association



Bronze Award: Best Cover

• Bronze Award (third place) – Best Cover for an Association – by Martini Graphics for the September-October 2010 issue with the cover story “What Keeps Your CFO Awake at Night?”

We plan to continue shooting for the top spots in every category from our professional associations - which is good news for you, because that means more top-quality articles and graphics about financial operations. With your feedback and participation, we should be able to expand to a second trophy case in no time. We thank you for that!

If the IRS is overworked, where does that leave you and me?

Posted by Diane Sears

A report released today says the IRS is struggling to keep up with the largest batch of tax-law changes we’ve seen in 20 years. They’ve hired 3,300 more people in the past two years and still find themselves unable to keep up with the tremendous workload.

I'd much rather have a batch of these.

That reminds me of an old adage: Misery loves company. Accountants and professionals who work in accounts payable and accounts receivable have been working really hard on this end, too. It’s not easy to keep up with tax law. Just when you think you know what you’re doing, the rules change. And change again. And then new rules are added in, and they change.

Here at The Institute of Financial Operations, we’re conducting a survey on how our members continue to perform their jobs on this moving train. One of the questions we’re asking on the 2011 Tax and Regulatory Survey is how you stay current on local, state, federal, and international tax laws. Do you assign certain employees to maintain expertise through seminars and training? Do you have a tax department where each person on staff handles certain specialties? Or do you outsource the whole package?

Tax and reg issues are by far the most popular of all educational resources the Institute offers, I learned from Elizabeth Wagonseller, our vice president of professional development. A new self-paced study program launched in February is doing well, and there are webinars planned for later this year. She cited one recent online tax seminar that drew in five times as many attendees as other topics.

In the meantime, our partners in the survey, Convey Compliance Systems, say their tax and regulatory seminars are seeing boosts in attendance in recent years, and their next annual C2 Summit Sept. 28-30 in Washington, D.C., promises to be busy as well.

Which brings us back to the overworked IRS employees. How busy are they? Michael Cohn, editor-in-chief of AccountingToday.com, pulled out of the report some interesting statistics he wrote about in an article posted today, “IRS Workforce Challenged By Changing Tax Laws.” By the way, the comments on his article started coming in from readers almost right away, so be sure to read to the end to see those.

Here are the stats from the annual report issued today, “Trends in Compliance Activities Through Fiscal Year 2010,” by the Treasury Inspector General for Tax Administration:

• There are 56 new tax provisions from the American Recovery and Reinvestment Act of 2009.
• At least 42 out of 514 provisions in the Patient Protection and Affordable Care Act have added to or amended the Tax Code. An additional eight required the IRS to establish new operations.
• The IRS hired more than 2,000 revenue agents and compliance officers in 2009, the largest hiring increase in five years. The agency hired another nearly 1,300 in fiscal 2010, but the increased workforce didn’t entirely make up for the growing workload or attrition.
• The staff increases represent a 19 percent increase in collection and examination enforcement personnel, compared with a 4 percent increase in employees overall, from 103,811 in fiscal 2006 to 107,622 and the end of fiscal 2010.

Sometimes I think it would be easier to just scrap the whole tax law structure and start over. But then I think, nah, we’d just have to spend time in seminars teaching ourselves the basics of a new system – and I’m pretty sure Congress would keep changing that one, too. Might as well keep plugging away at what we’re doing and quit daydreaming about a tax and reg nirvana.

So I'll see you at the Convey C2 Summit!

Groups aren’t holding back when it comes to 3% withholding

Posted by Diane Sears

Business groups are lining up to get in their jabs about a federal mandate that calls for federal, state, and local governments to withhold 3 percent of each payment they make to contractors for goods and services starting Jan. 1, 2013. They’re pushing for a repeal.

The Institute of Financial Operations has joined the effort. President and CEO Thomas M. Bohn put it this way: “It’s a Swiss cheese approach to tax policy and an incredible burden on financial operations professionals who are already stretched thin."

The withheld money is supposed to go toward the contractor’s tax return and is designed to pump money into federal coffers to help close the $345 billion tax gap, the difference between what the IRS is owed and what it collects. Opponents have grown increasingly vocal, saying the measure will burden businesses by reducing their cash flow, which has multiple implications, and it will add administrative costs for both businesses and government. Proponents say … hmm, I don’t know what they say because they’re laying low right now.

Three bills before Congress seek to repeal the withholding requirement: HR 674, introduced by Rep. Wally Herger, R-Calif.; S 89 from Sen. David Vitter, R-LA.; and S 164, from Sen. Scott Brown, R- MA.

Here’s a little history for you: The 3% withholding tax was enacted as Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005. Originally set to take effect in 2011, it was delayed until 2012 under the 2009 stimulus law and then delayed again until 2013 this year under IRS regulations.

In a previous blog posting, I predicted this issue will be as big as the 1099 repeal effort that began last summer. Will it be as successful? Probably, and here’s why: The business groups have built what looks like a solid case against the measure.

The U.S. Chamber of Commerce has launched a Repeal Withholding Now campaign in partnership with the Government Withholding Relief Coalition. They call it “another roadblock for small businesses when they can least afford it” and a “burdensome withholding tax and job-killing mandate,” blasting the requirement for “not only causing an unprecedented paperwork burden for the government and companies who provide goods or services to them, but forcing firms to increase costs to offset the impact of delayed payments and disrupting businesses' cash flows.”

Check out some of the other relevant arguments business groups are making:

Associated General Contractors of America:

• Withholding applies to the total contract, not to the net revenue generated. The 3% withholding will be more than the profit margin on many construction contracts.
• Money the contractors spend on preparing to comply with this measure will divert cash from activities that would expand their businesses, such as beefing up their workforce and purchasing equipment. Reduced cash flow also could restrict their capacity to obtain bonds they’re required to carry, which might even put them out of business.
• Instead of punishing contractors, the federal government should just enforce existing laws about reporting revenue and paying quarterly taxes.

The Republican Study Committee:

• The Department of Defense estimated that implementing the withholding tax will cost $17 billion for its agency alone – more than the total revenue the tax is projected to raise. Cash-strapped state and local governments will also face substantial implementation costs.
• Instead of imposing a new tax that punishes law-abiding vendors and contractors, Congress should support initiatives to improve information sharing among agencies to prevent tax-delinquent businesses from obtaining contracts.

American Council of Engineering Companies:

• A provision of the bill that applies to healthcare providers will exacerbate the trend of doctors opting not to serve Medicare patients, leading to less service and care for the elderly.
• This is an unfunded mandate for state and local governments whose budgets are already under duress.
• In addition to the implementation costs, state and local governments will end up paying more for goods and services as businesses raise costs to offset the withholding, squeezing already stretched resources for schools, fire departments and law enforcement agencies.

American Farm Bureau Federation:

• Reducing cash flow by 3 percent will make it harder for farmers to purchase the supplies they need to plant and grow a crop, to pay farm workers, and to maintain farm buildings and equipment.
• The measure will have negative effects on the availability and affordability of healthcare in rural America. Medicare serves 23 percent of the rural population, compared with 20 percent of the population in urban areas, so withholding 3 percent of Medicare payments will make it harder to maintain rural health facilities and more difficult to attract doctors to rural areas.

National Electrical Contractors Association:

• The gains to the government are cosmetic and minimal, and amount to a one-time accounting gimmick that wreaks real damage on contractors and state and local governments. The provision is estimated to provide a one-time federal revenue windfall of $6 billion in the first year of implementation solely due to accelerated tax receipts.

American Institute of CPAs:

• State and local governments say they will need to reprogram systems to comply with the law, which is likely to prove costly, particularly during a period of budgetary imbalances and difficult economic times.
• As a government prime contractor, a company might find it extremely difficult to adjust subcontractor arrangements to pass the timing and cost of withholding on to the subcontractors. This issue alone represents the potential for notable impact on contractor cash flows and financing and administrative costs.
• Over the past decade, the operating costs of medical service professionals, such as physicians, nurses, medical support staff, and administrators, have increased significantly while Medicare payments have increased slightly in excess of 1 percent per year on average.
• Individual farmers and individual fishermen are required to make one estimated tax payment as opposed to quarterly estimated payments, and that is in January of the following year. That requirement is waived when they file their tax returns by March 1. Imposing 3 percent withholding these farmers and fishermen will result in an acceleration of the tax payments to the government, something that would contradict the underlying policy reasons for the law that governs their tax reporting.

With arguments like these, it’s hard to support the measure. But you never know what will happen in Congress. We’ll keep you posted!