NBFAA fights "withholding tax"

Tuesday, May 1, 2007

IRVING, Texas--Security businesses stand to lose money or may have to charge more for their services if a federal "withholding tax mandate" is allowed to go into effect. Consequently, the National Burglar & Fire Alarm Association is working to repeal the mandate--scheduled to go into effect in 2011--that would allow the federal government to skim three percent off the top of security integrators' bills when integrators do business with federal and state governments and some local governments.
On March 13, the NBFAA, the Security Industry Association and 48 non-security-related organizations, pledged to support H.R. 1023, a bill that seeks to repeal this mandate.
The federal withholding mandate is part of the "Tax Increase Prevention and Reconciliation Act of 2005," which was added to the last year's tax legislation at the last minute "without any consultation with state and local government officials or organizations representing government contracts. Members of Congress were not aware of the provision or what it would mean to their districts," according to an NBFAA statement.
The mandate calls for the federal government and any state and local governments with annual spending of more than $100 million to withhold three percent from their payments to vendors for goods and services and send it to the IRS.
Michael Meredith, president of Security Equipment Inc. of Omaha, Neb., runs a $17 million alarm company with 13,000 (a 50-50 mix of residential and commercial) customers, and a UL-listed central station. He is also chairman of NBFAA's Government Relations Committee.
"The majority of people in our industry are small businesses and this hurts small businesses," he said. "It's a strange [mandate] that slid through and it's first on the list of bills that I wanted to tackle as the new chairman of the government relations committee."
If the mandate is allowed to stand, "businesses are just left with three percent less profit. This leaves them two options: charge more--and that doesn't do any good for the taxpayer--or just lose money."
H.R. 1023 was introduced recently by Rep. Kendrick Meek (D-Fla.) and Rep. Wally Herger (R.-Calif.). Legislative director for the NBFAA, John Chwat expects the bill to be addressed by the end of this session because it has so much support. "Just look at the list of associations who support the repeal," he said.