In 2006, Congress passed the Tax Increase Prevention and
Reconciliation Act (TIPRA) of 2005. Unfortunately, for roofing
contractors and other businesses that contract with government
agencies, this law contains an onerous tax increase scheduled to
take effect Jan. 1, 2012.
Section 511 of TIPRA mandates tax withholding at a 3 percent
rate on payments to vendors for goods and services on all federal
contracts, as well as those issued by state and local governments
with expenditures of $100 million or more. The provision's
objective, according to lawmakers who inserted it into the bill, is
to increase vendor and contractor compliance, thus collecting
underreported tax revenues.
The 3 percent of payment to be withheld would be taken off a
contract's total value, not the profit earned on the project.
Therefore, the withholding law initially would eliminate
contractors' profits on many projects. Although contractors may
collect the 3 percent tax at the end of the year, disruptions in
cash flow and operating capital caused by withholding would be a
tremendous burden, particularly for...
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