UPDATE: Independent Contractor Tax Withholding

BOMA San Francisco Members:

As we reported previously, the state Budget Conference Committee has agreed to a budget gap proposal that includes a provision forcing anyone that makes payments to independent contractors (including property managers and owners) to withhold 3% of those funds paid in excess of $600 per year, and send the money to the California Franchise Tax Board. This proposal is part of the larger state budget that will be considered today. Please consider sending this letter of opposition to your state legislator to inform them of what a bad idea this. Click here to find your California State Legislative Representatives or reference this list:

Senator Leland Yee (San Francisco/San Mateo)
Fax: (916) 327-2186
Email: senator.yee@sen.ca.gov

Senator Mark Leno (San Francisco)
Fax: (916) 445-4722
Email: senator.leno@sen.ca.gov

Assemblymember Fiona Ma (San Francisco)
Fax: (916) 319-2112
Email: fiona.ma@asm.ca.gov

Assemblymember Tom Ammiano (San Francisco)
Fax: (916) 319-2113
Email: tom.ammiano@asm.ca.gov

Assemblymember Jared Huffman (Marin/Sonoma)
Fax: (916) 319-2006
Email: jared.huffman@asm.ca.gov

Assemblymember Jerry Hill (San Mateo)
Fax: (916) 319-2119
Email: jerry.hill@asm.ca.gov

This withholding requirement would be extremely onerous to our industry, forcing us to, in effect, deduct 3% from each vendor payment, and remit it to the government on a quarterly basis with a withholding form. In addition, the vendor would have to be notified of the amount withheld from each payment. And, further, it appears that the payer would have to file an annual reconciliation for each vendor.

Most properties have at least 2 dozen vendors, and the administrative burden would be comparatively low. However, for those of us with multiple owners, multi-owner partnerships, or common trust accounts that contain multiple property or owner accounts, and hundreds of vendors, this can amount to literally hundreds of filings each quarter.

Currently, no other state requires independent contractor withholding. As a consequence, there is no accounting system software available that has the capability to track withholding and remittance. The cost to develop or implement such systems will be very significant, and these systems cannot be developed and implemented overnight.