WASHINGTON - The Internal Revenue Service (IRS) has announced a decision to defer for one year - from Jan. 1, 2012 to Jan. 1, 2013 - the withholding of 3 percent tax on all payments for goods and services made by the federal, state, and local governments with total expenditures of $100 million or more. The 3 percent withholding tax applies to the total contract, not to the net revenue generated from a project.

Geoff Burr, vice president of federal affairs for the Associated Builders and Contractors (ABC), said, “While we welcome this news by the IRS, ABC firmly believes that delaying the effective date is not a solution because there is still no equitable, practical, or cost-effective way to implement this new requirement.

“We will continue to work with our coalition partners to fully repeal this burdensome and unfair regulation,” he said.

“The problem with the 3 percent withholding regulation for construction contractors is that the government will retain the funds necessary to complete a project, such as those needed to pay for subcontractors, materials, and suppliers,” said Burr. “In addition, the increased administrative costs to both large and small contractors as well as the government to comply with this withholding requirement will drive up the cost of construction, which in turn, will force smaller firms out of the public sector market.”

Currently, there are three bills pending in Congress, H.R. 674, S. 89, and S.164, that would fully repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005.

Publication date: 05/09/2011