Three Percent Government Contractor Withholding Tax Repeal Bills Introduced

The controversial law would effectively force contractors to make interest-free loans to the federal government, potentially wiping out profit margins.

With the 3 percent government contractor withholding tax set to go into effect in 2012, efforts to repeal the controversial provision are heating up.

The tax, found in Sec. 511 of the 2006 Tax Increase Prevention Reconciliation Act, requires that federal, state and local governmental entities whose annual expenditures exceed $100 million withhold 3 percent of all payments made to any individual or company that has provided goods or services to the government. These withholding amounts are sent to the Internal Revenue Service and credited against government contractors' future tax liability. The law effectively forces contractors to make interest free loans to the federal government. In some cases, the amount will exceed a business profit margin.

Two bills have been introduced in the Senate to repeal the tax. A proposal introduced by five Republican senators, S. 89, simply repeals Section 511. While a bipartisan measure, S. 164, repeals the three percent tax, but would offset the cost of scrapping the law by using unobligated stimulus funds. AED supports either proposal as a reasonable means to repeal the impending tax.

AED believes the tax will hurt the cash flow of small companies and individuals doing business with the government, drive up contract administration costs, and have little positive impact on the federal budget.

To send a note to your lawmakers urging repeal of the 3 percent government contractor withholding tax, go to: Article Date: 01-31-2011

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Associated Equipment Distributors (AED) is an international trade association representing companies involved in the distribution, rental and support of equipment used in construction, mining, forestry, power generation, agriculture and industrial applications. AED member dealers are unique in that they are each authorized, via contract with an original equipment manufacturer, to inventory, sell and service new machinery in a given geography. More than 90% of AED's factory authorized dealers rent construction equipment as well. The Associated Equipment Distributors strongly adheres to and strongly advocates principles of integrity, ethics and fairness. The AED urges its members to conduct their businesses ethically and compatibly with the free enterprise system and the laws which govern it. Contractors can locate factory authorized construction equipment dealers at the MachineMart web site.

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