AGC recently submitted comments to the Internal Revenue Service (IRS) in response to the agency's December 5, 2008 notice of proposed rulemaking to implement the 3 percent withholding law enacted in 2006. Effective January 1, 2012, 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. AGC has strongly opposed this legislation since it was introduced.
IRS' proposed rule clarifies that payments for the construction of a building or other public works projects are subject to 3 percent withholding, which could adversely affect a contractor's cash flow. To view a copy of AGC's letter, and for additional information on the proposed rule and AGC's position, please click here.
Congress recently enacted a one-year delay in the effective date of the law (i.e., from 2011 to 2012) as part of H.R. 1, the American Recovery and Reinvestment Act. AGC has 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.
On January 7, Representative Kendrick Meek (D-FL) 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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