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April 28, 2009: MCAA Board Member Speaks Against 3 Percent Withholding Tax at IRS Hearing

April 28, 2009
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WASHINGTON - The Mechanical Contractors Association of America (MCAA) announced that board member Adam Snavely, president and CEO of The Poole & Kent Corp., Baltimore, represented MCAA and the Quality Construction Alliance (QCA) at an Internal Revenue Service (IRS) hearing on the 3 percent withholding tax on government contracts.

Snavely thanked the IRS for accepting the QCA position in proposed regulations that prime contractors cannot pass through the withholding to subcontractors on covered public projects. However, he emphasized that federal rules will have to be rewritten so that permissible payment withholding and retainage flow-down clauses do not pass through the 3 percent tax withholding beyond the prime contract. Snavely stressed that the withholding can only be assessed against amounts payable to prime contractors and not to invoice amounts payable by a prime contractor to a subcontractor.

Snavely agreed with other private and public sector witnesses that the public law that enacted the new withholding tax is widely recognized as “profoundly flawed fiscal and procurement policy,” and that Congress should quickly and realistically reassess the true costs of implementing the proposal as compared with the relatively small incremental benefits. The witnesses further agreed that Congress should repeal the tax before any more resources are spent in anticipation of implementing the new law.

MCAA and the QCA are planning to get the repeal question before Congressional procurement committees as a way of focusing more on the flaws of the measure outside its narrow tax revenue gains assessment.

Publication date: 04/27/2009

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