State Sen. Darrell Steinberg, D-Sacramento, has postponed his plan for a 3 percent withholding tax on payments companies make to independent contractors. The plan had galvanized opposition from business interests.
In comments at a recent Sacramento Press Club meeting, Steinberg said the proposal would not be acted upon immediately as he had originally planned, but “will remain a live option come June or July,” when the 2010-11 state budget is set to be debated.
The withholding tax, which could generate up to $2 billion in one-time revenues for the state, would be a problem for independent contractors, especially those in low-margin industries. Examples of independent contractors range from personal trainers to freelance special-effects artists.
Gov. Arnold Schwarzenegger had vetoed a withholding tax on independent contractors last year, but business groups fear that as the state’s budget crisis continues, the tax will become a more tempting option. They say such a tax represents a loan from independent contractors to the state at a time when many of those contractors do not have enough cash flow.
