Construction Industry Celebrating Withholding Tax's Repeal

When the president signed H.R. 674 on Nov. 21, repeal proponents completed a five-year campaign to eliminate the requirement that federal, state, and local governments with total expenditures of $100 million or more withhold 3 percent from payments for goods and services.

Federal contractors are celebrating after winning a protracted battle to repeal a provision in the Internal Revenue Code that would have required federal, state, and local governments with total expenditures of $100 million or more to withhold 3 percent from payments for goods and services beginning Jan. 1, 2013. The provision was enacted in May 2006 with the signing of the Tax Increase Prevention Act of 2005, but repeal efforts began immediately and it never took effect because of delays by Congress and the IRS.

Both houses of Congress passed the repeal measure unanimously earlier this month.

The National Association of Counties' executive director, Larry Naake, said prior to President Obama's Nov. 21 signing of H.R. 674 that local governments' costs to comply with the tax provision "would have been enormous. It would have required our nation's larger counties to reprogram or purchase new accounts payable systems, hire additional staff, and essentially turn county accounting offices into IRS district offices."

Both Associated Builders and Contractors Inc. (ABC) and The Associated General Contractors of America (AGC) worked to repeal the withholding tax. AGC said members from all regions of the country called and visited members of Congress to urge them to back its repeal, and the association said more than 18,000 letters supporting repeal were delivered to congressional members using the AGC Legislative Action Center.

H.R. 674 also creates a retraining program for military veterans that will be run by the VA and the U.S. Department of Labor. As many as 45,000 veterans may participate in fiscal 2012 and as many as 54,000 more between Oct. 1, 2012, and March 3, 2014.

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