A pair of bills in the Senate would repeal a 3% withholding requirement on all federal, state and local government contracts set to take effect next year.

The Withholding Tax Relief Act of 2011 (S. 89), introduced by Sen. David Vitter (R-LA), currently has four Republican cosponsors and seems to be the most likely of the two bills to move. The other version, which has an identical name but different bill number (S. 164), was introduced by Sen. Scott Brown (R-MA) and has only two cosponsors, one of whom is a Democrat. Both pieces of legislation have been referred to the Finance Committee.

The only difference between the two bills, other than competing numbers and partisan pedigrees, is that Brown's version also includes a provision that rescinds $39 billion in funds that have been appropriated for government agencies, but remain unobligated, which is to say unspent and unlikely to be spent. Unobligated funds from the Department of Defense and Department of Veterans Affairs would be exempt under this provision in Brown's bill.

The 3% withholding requirement was originally enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA), which was signed into law in 2006. It was originally scheduled to go into effect on January 1, 2011, but was delayed to January 1, 2012 in 2009 by the American Recovery and Reinvestment Act (ARRA). Should the requirement go into effect, any and all transactions for goods and services with a government entity would be subject to a 3% withholding charge, kept by the governmental entity in question.

NACM has fought the enactment of this provision, which will fall disproportionately on smaller businesses, since its introduction. As a member of the Government Withholding Relief Commission, NACM has lobbied for a full repeal and hopes Congress acts quickly to remove this unfair and potentially harmful provision from the tax code.

Stay tuned to NACM's eNews and Credit Real-Time Blog for updates.

Jacob Barron, NACM staff writer

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