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Possible Repeal of 3% Withholding Law Through Stimulus Package?

The federal economic stimulus package is not just about infrastructure investments. It contains many provisions of keen interest to the construction industry – including the three percent withholding law for government contracts. Jeff Shoaf Executive Director of Government and Public Affairs for AGC of America highlighted some of these less noticed provisions during the recent AGC of Washington Annual Convention.

In 2011 a new law will require federal state and local governments to withhold 3 percent from all payments for goods and services as a guard against possible business tax evasion. The withholding applies to the total contract not to the net revenue generated from a project.

AGC has been fighting this measure making the arguments that most construction contracts average less than 3 percent profit tightened cash flow will restrict bonding capacity and enforcement of current laws would ensure tax obligations are met.

Last week the House Ways and Means Committee passed the tax component of the economic stimulus bill which included the full repeal of the 3 percent withholding law on government contractors. The Senate version of the stimulus bill currently includes a one-year postponement of the withholding law (not a full repeal). It remains to be seen how this will play out as the stimulus package moves to final enactment but these are encouraging signs that Congress seems to understand the undue burden that the withholding law places on contractors.

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