Legislative alert!(public laws)

Dear NACM member:

As NACM members, we possess a collective authority and force that can have a profound impact on the course of events affecting the conduct of our businesses.

Today, NACM needs your help on an issue that urgently deserves your attention, collective efforts and energies.

On May 17, 2006, President Bush signed H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005, into law (Public Law 109-222). This law contains a little-known provision (section 511) that will impose a 3 percent withholding tax on the value of most contracts for goods and services sold by businesses to federal and state governments as well as to local political subdivisions with contracting expenditures of $100 million or more.

This 3 percent withholding tax will impose a financial strain on all businesses that rely on sales to the government. One of the major problems with this new tax is that it is based on the value of the contract, with no relationship to companies' taxable income. It will be especially burdensome to many small and medium sized businesses that exist on very tight cash flows and simply can't afford this new withholding tax. Businesses are already struggling to provide quality products and services to the government at the lowest possible price. The hardship this new tax imposes affects all businesses that do business with government entities, no matter what their size.

Fortunately, there is hope that this 3 percent withholding tax can be repealed. On the same day that President Bush signed H.R. 4297 into law, Senator Larry Craig, (R-ID), introduced S. 2821, entitled the Withholding Tax Relief Act of 2006, which repeals section 511 of the law, effectively eliminating this 3 percent withholding tax.

NACM's position on this new withholding tax is: