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Treasury Issues Final Regulations with Respect to 3% Withholding Repeal

Last year was a good year for NACM's government affairs program.

In addition to meeting with legislators on potential bankruptcy reform and increasing the visibility of commercial trade creditors government-wide, NACM played a role in the final repeal of the long controversial 3% withholding tax. Had it gone into effect, most local, state and federal government contracts would've been subject to a 3% withholding charge on the value of the contract, drastically constricting cash flow for suppliers and vendors involved in such transactions.

NACM fought for repeal of this provision since its enactment in the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005. And, as a final gesture signifying the elimination of the 3% withholding tax, the Internal Revenue Service (IRS) issued a document this week removing the regulations requiring government entities to execuate the withholding charge.

"The final regulations are removed because the 3% Withholding Repeal and Job Creation Act repealed the provision of the Internal Revenue Code underlying the final regulations before the provision became effective," said the IRS. "The guidance affects government entities that would have been required to withhold and report tax from payments to persons providing property or services and also affects the persons receiving payments for property or services from these government entities."

President Barack Obama signed H.R.674, the 3% Withholding Repeal and Job Creation Act, into law last November, following a vigorous campaign on the part of NACM and several other business groups to remove the law from the federal record. Although it was originally conceived as a means to reduce the nation's tax gap, representing the $345 billion in tax revenue that annually goes uncollected, the provision would've done more harm than good, shackling small businesses with a disproportionately higher portion of the tax burden and ultimately costing the nation a great deal of potential job growth.

NACM thanks its members once again for their help repealing the 3% withholding law. For more information on NACM's advocacy efforts, click here.

Jacob Barron, CICP, NACM staff writer