On November 21, 2011 the President of the United States signed
H.R.674 which repeals the 3 Percent Withholding Law. The new
law completely eliminates the 3 Percent Withholding Law which was
part of the 2005 Tax Increase Prevention and Reconciliation Act.
Without repeal, state and large local governments would have
had to withhold 3 percent of most payments made to vendors and
remit that 3 percent to the IRS.
Originally, the 3 percent withholding law was passed to ensure
that vendors were complying with federal tax law. However,
the law, which had been scheduled to go into effect January 1, 2013
would have placed a costly unfunded mandate on state and local
governments, which would have had to implement new payment systems,
and likely absorb additional costs charged by vendors. As a
result, the GFOA, other state and local government associations,
and as many from the private sector have been pushing for repeal.
Source: GFOA Newsletter Volume 86, No. 22 November
25, 2011
