The deadline for comments in response to the December 5, 2008 Internal Revenue Service (IRS) notice of proposed rulemaking to implement the 3 percent withholding provision is approaching on March 5. With Congress unlikely to include a full repeal of the law in its economic stimulus package, but rather a one-year delay in its effective date (from 2011 to 2012), AGC is preparing comments to the IRS. AGC has once again made full repeal of the onerous 3 percent withholding tax a top priority of the 111th Congress and will continue efforts to urge Congress to enact such legislation.
Effective January 1, 2011 (or January 1, 2012 under the proposed stimulus bill), federal, state, and local governments with annual expenditures of $100 million or more are required to withhold 3 percent from payments for goods and services, including payments made under government contracts with construction companies. The law was intended to reduce the so-called "tax gap" and tax evasion.
IRS' proposed rule clarifies that payments for the construction of a building or other public works projects are subject to 3 percent withholding. For additional information on the proposed rule and AGC's position, please click here.
On January 7, Representative Kendrick Meek (D-Fla.) introduced H.R. 275, a bill to repeal the 3 percent withholding law. On January 21, Senator Arlen Specter (R-Pa.) introduced a Senate version, S. 292. AGC is working with a broad coalition of stakeholders to enact the legislation.
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