On November 7, 2011, we notified you that the Senate was voting on the 3% withholding tax, dubbed the “Anti-Stimulus” bill. It appears that your phone calls and letters to our Washington State Senators (Senators Murray and Cantwell) paid off.
In a rare display of bipartisanship, the Senate voted 95-0 to repeal the bill.
This should come as a huge relief for government contractors throughout the U.S. The bill, which would have gone in to effect on January 1, 2013, required federal, state, and local governments, with an annual budget of $100 million or more to withhold 3% of payments (over $10,000) on every contract. Many government contractors, bidding on public works projects carry profit margins of 3% or less. While the contractor would be able to recover the 3% after the contractor files a tax return, the withholding would give the government an interest-free loan and prohibit the contractor from realizing its profit until the following year – wreaking havoc on the contractor’s cost accounting systems. More importantly, many government contractors would be in danger of having to shut their doors in these hard economic times. Finally, preventing contractors from making a profit on public projects would likely result in higher bid prices just so the contractor could fund the next government project.
For more information, check out Mike Purdy’s blog.