Possible Repeal of 3% Withholding Law Through Stimulus Package?
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.