Extend Energy Credits, Repeal 3% Withholding Tax, Congress Told

Washington - Dozens of plumbing contractors descended on Capital Hill on May 1 to urge their Representatives and Senators to extend tax credits for purchases of energy efficient equipment and to repeal a pending 3% withholding tax on all government contracts.

Washington - Dozens of plumbing contractors descended on Capital Hill on May 1 to urge their Representatives and Senators to extend tax credits for purchases of energy efficient equipment and to repeal a pending 3% withholding tax on all government contracts.

Politically active members of the Plumbing-Heating-Cooling Contractors - National Association took part in the association's annual legislative conference. In an attempt to increase the effectiveness of their lobbying, the PHCC-NA group was joined by Air Conditioning Contractors of America and Heating, Airconditioning & Refrigeration Distributors International, who held their Congressional “fly-ins” at the same time.

While the contractors had a host of issues on the table, repeal of the estate tax among them, they chose to focus on energy tax credits and the 3% withholding tax. The Energy Policy Act of 2005 included tax credits for homeowners who installed high efficiency central air conditioners, heat pumps, furnaces, boilers and water heaters in tax years 2006 and 2007. The tax credits, which sometimes helped justify the added cost of high efficiency equipment, expired Dec. 31, 2007.

The contractors pointed out that the tax credits had helped consumers save energy and water, lowered utility bills, increased indoor comfort and reduce greenhouse gas emissions by using less electricity. The tax incentives also promoted economic growth by inducing consumers to buy new equipment.

PHCC-NA is supporting the passage of S.2821, The Clean Energy Tax Stimulus Bill of 2008, sponsored by Sens. Maria Cantwell (D-Wash.) and John Ensign (R-Nev.)

Congressional staffers generally reacted favorably to the contractors' efforts on behalf of S.2821, saying the expiration of the tax credits last December was largely an oversight that would be corrected. The plumbing contractors heard mixed messages from Congress on the 3% withholding tax.

The withholding tax was included in the 2005 tax reconciliation bill, formally known as Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005. Starting in 2011, it would require Federal, state and local governments to withhold 3% of the contract value of any person supplying goods or services. It would apply to anything from work at the Pentagon to remodeling the men's room at the local police station.

The intent of the legislation was to close the “tax gap,” the billions of dollars difference between what the Treasury believes it is owed and the tax payments it actually receives.

PHCC opposes the law because it uses a sledgehammer approach that hits honest companies, not just tax cheats. It will causes government contractors to increase prices or not bid at all. It will restrict cash flow, PHCC-NA noted, causing surety companies to lower the bonding capacity they're willing to offer.

Jessica Johnson Bennett, PHCC-NA director of government relations, told contractors that the Internal Revenue Service opposes the law because it doesn't have a mechanism to enforce it or collect the money. Contractors also worry that Congress might accelerate the tax to earlier than 2011.

Contractors heard opposing views on Capital Hill. A staffer for Sen. Charles Grassley (R-Iowa) told contractors that the money was needed in the budget and the tax would not be repealed.

Conversely, a legislative assistant to Sen Richard Durbin (D-Ill.) told a delegation of Illinois contractors that he thought the tax was an accounting game that promised potential revenue in 2011 in order to balance out spending bills from 2005.

“It's my sense that it's going to go away,” Legislative Assistant Brad McConnell told the contractors.

HARDI and ACCA organized more than 100 meetings with House and Senate offices. Sixty HARDI members participated in the distributor association's first Congressional Fly-In, which was praised by its members as a complete success. The wholesalers focused on pending legislation on climate change and proposed restrictions on HFC refrigerants, asked Congressmen for some certainty in estate tax policy, promoted the energy efficiency tax incentives and credits, and reinforced the value of the LIFO accounting system, among other issues.

ACCA contractors lobbied Congress on global warming and climate change legislation, and told their legislators that reducing the amount of refrigerants sold would put greater regulatory burdens and paperwork requirements on HVACR contractors.