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Contractors Urge Repeal of ‘3% Withholding’ Rule; Senate Vote Awaited

Friday, October 28, 2011

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The Associated General Contractors of America is calling on the U.S. Senate to repeal the so-called “3% withholding” rule affecting federal contractors, saying the rule essentially forces contractors to help finance federal construction projects in difficult economic times for the industry.

On Thursday, the U.S. House of Representatives voted by a margin of 405 to 16 to repeal the tax measure. Under the law, federal agencies would withhold 3% of payment to contractors delinquent on federal taxes beginning in 2012.

Sandherr: 3% withholding measure amounts to interest-free loans for federal projects.

Stephen E. Sandherr, CEO of the Associated General Contractors of America (AGC), said an “overwhelming majority of representatives understand that the 3% tax withholding measure would force construction firms to provide the federal government with multibillion-dollar interest-free loans at a time when construction activity has declined by $400 billion and unemployment rates stand at over 13%.”

In a recent survey, members of the organization expressed concern that the failure to repeal would force contractors to “cut staff, purchase less equipment and raise bid levels for publicly funded projects,” Sandherr said.

“Given the fact that a majority of senators have already voted to repeal the tax measure and the president has said forcing contractors to forgo 3% of their earnings will hurt the economy, we expect the Senate to act swiftly to repeal this measure,” he said. “And once that happens, we expect the president will quickly sign this desperately-needed legislation into law before the tax withholding mandate significantly damages our economy.”

News reports indicated the legislation to repeal the 3% withholding rule is expected to go to a vote in the Senate this week. In addition to AGC, the repeal has the strong backing of major business groups, including the U.S. Chamber of Commerce.

Congress passed the withholding measure in 2006 as a way to deter tax evasion among government contractors. Key senators are reported to be working on a proposed alternative that would address tax compliance by other means.

Comment from Tom Schwerdt, (10/31/2011, 7:22 AM)

The 3% withholding is only on contractors delinquent on taxes and not paying what they owe. The Feds withold a heck of a lot more than 3% from my check, and I've never been delinquent. Absolutely, contractors who don't pay their taxes in full and on time should have monies withheld.