Contractors Center Point

President Signs 3 Percent Withholding Tax Repeal Into Law

Repeal of the three percent withholding tax repeal contained in section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law by President Barack Obama on Nov. 21.

The bill, H.R. 674, was passed in a 422-0 vote by the U.S. House of Representatives on Nov. 16 and was approved a week earlier by a unanimous vote in the Senate. The bill amends the Internal Revenue Code to repeal the 3 percent withholding tax for government contractors.

The withholding mandate, hidden in the fine print of TIPRA, would have required 3 percent to be withheld on all payments for goods and services made by federal, state and local governments with total expenditures of $100 million or more beginning Jan. 1, 2013.  Implementation of the provision had been subject to annual delays by Congress and regulators, respectively, until bipartisan support for repeal coalesced during the recent focus on jobs legislation. 

To learn more about legislative happenings within the construction industry, please contact Associated Builders and Contractors at www.abc.org or the construction professionals of McKonly and Asbury, LLP.

Construction Backlog Indicator Shows Stagnant Third Quarter Activity

On Tuesday November 15, 2011, Associated Builders and Contractors (ABC) today released its Construction Backlog Indicator (CBI) for the third quarter of 2011. At 8.1 months, the third quarter CBI remained unchanged from the previous quarter, but was up 16.3 percent from a year ago. CBI is a forward-looking economic indicator that measures the amount of construction work under contract to be completed in the future.

“The lack of increase in the CBI last quarter appears to be a symptom of the soft patch in economic momentum experienced in the middle of this year, as well as the ongoing and elevated level of uncertainty regarding Europe, financial markets and other aspects of economic life,” said ABC Chief Economist Anirban Basu.

“A backlog of less than 8 months is associated with construction spending declines, while a backlog exceeding 8 months is statistically associated with future construction spending increases,” said Basu. “Today’s level of backlog is consistent with flat construction spending.

“The implication of the most recent CBI data is that momentum in the U.S. nonresidential construction industry is in the process of stalling,” said Basu. “The question remains: Will the nation’s commercial and industrial construction industries face a long-term slump or become reinvigorated in the new year?”

Regional Highlights

• Regional construction backlog grew in the Northeast and the South from the second quarter to the third quarter, but shrank in the Middle States and the West. On a year-over-year basis, backlog is higher in every region of the nation with the exception of the Northeast.
• The South continues to report the lengthiest construction backlog of any major region at 9.41 months, and is 35 percent higher than one year ago.
• Construction backlog in the Middle States continues to be the shortest at 6.5 months.

Industry Highlights

• Average construction backlog in the nation’s infrastructure industry surged during the third quarter, with backlog expanding from 7.9 months a quarter ago to 9.2 months.
• In the commercial and institutional category, construction backlog took a step back, falling from 8.6 months during the second quarter to 8.4 months in the third quarter.
• Construction backlog rose in the heavy industrial category to 5.9 months during the third quarter, but is still down from year-ago levels and is lowest among all categories monitored by ABC.

Highlights by Company Size

• During the past quarter, firms in the $100 million or more category experienced the largest construction backlog at 9.8 months – the highest level for this category in the history of the CBI.
• For firms with annual revenues of less than $30 million, construction backlog declined from 7.5 months to 7.1 months.
• Construction backlog for firms in the $30 million to $50 million category saw a slight decrease from 9.8 months in the second quarter of this year to 9.7 months in the third quarter.

For more information on the CBI please contact Associated Builders and Contractors at www.abc.org or contact the construction professionals of McKonly and Asbury, LLP.

 

New Local Tax Withholding Requirements for Contractors

As we approach 2012, there has recently been much attention given to the new local earned income tax requirements that take effect for employers operating in Pennsylvania.  Act 32 was passed in 2008 but has not received much attention until now as the full implementation will be effective 1/1/2012.  We recently published an article on our M&A news blog with general guidelines for the new program (click here to view article). 

The main purpose of Act 32 is to streamline local earned income tax and make the process more efficient.  In doing so, Act 32 will require every employer to withhold the correct rate from every employee who works in Pennsylvania and remit the tax to the proper jurisdiction.  The correct rate is determined by taking the higher of: 1) the jurisdiction nonresident rate where the business employer is located (the location where the particular employee works), or 2) the jurisdiction resident rate where the employee resides (is domiciled).  Typically, the rate where the employee resides will be higher than the nonresident rate of the employer’s location, because a number of jurisdictions’ nonresident rates are only 1%. 

So how will Act 32 specifically affect contractors?  Many contractors have employees on different job sites for a given period of time.   There are a few different issues to consider when determining the correct jurisdiction and rate to withhold: 

• First, if the employee is working at a jobsite that has a temporary trailer and job orders are also given from the trailer, the employer location in this case is considered to be the jobsite of the trailer regardless of the length of assignment for the employee. 

 

• Second, if the employee is at a jobsite that does not have a trailer and the job orders are given from the main office located in a different jurisdiction, it depends how long the employee is working at this jobsite.  If the job assignment is for three continuous months or longer, the jurisdiction is the worksite location.  If the assignment is for less than three months, the jurisdiction will be the location of the main office.   A potential issue could exist with localities if delays occur during a job where an employee has to remain on site longer than three months when initially it was anticipated that the assignment would be less than 3 months.

 

• Lastly, if the employee is assigned to a worksite in Philadelphia, the Philadelphia wage tax should be withheld in lieu of local earned income tax regardless of the length of the assignment.

 

For the situations described above where withholding is required for multiple jurisdictions, the employee must provide the employer with a properly completed Residency Certificate for each location.  As with all Residency Certificates, the employer must keep these for its records and have them made available if requested by a locality.

 For more information, contact the construction professionals of McKonly and Asbury, LLP.

Highlights of the McKonly & Asbury, LLP Fall Construction Seminar

On Tuesday morning November 1st at the Radisson Harrisburg/Hershey, McKonly and Asbury, LLP held its Fall Construction seminar. This well attended event featured speakers from McKonly & Asbury, LLP, Reager & Adler PC and McConkey Insurance & Benefits. 

The morning started with a very informative accounting and tax update from presenters from McKonly & Asbury, LLP. Michael Hoffner, Audit and Assurance Partner, discussed a number of different accounting and auditing related matters as it pertains to pension plan disclosures for contractors, changes to goodwill and intangible asset valuation timing and other exposure draft related matters regarding revenue recognition and equipment leases. Jason Skrinak, State and Local Tax Principal, discussed current changes in local income tax collection with ACT 32 as well as an update on business privilege tax with local municipalities. Lisa White, Construction Tax Senior Manager, discussed changes in the federal tax code for 2012 that will impact contractors.

Tom Williams, Partner, with Reager & Adler PC, helped attendees with guidance on how to identify if an employee is a contract employee versus a W2 wage employee with his discussion on the Employee Misclassification Act. Mr. Williams discussion was followed by a very insightful discussion by Greg Marco and Karen Mummert, Account Executives, with McConkey Insurance & Benefits as it relates to Reducing Contractor Financial Risk. Finally, the day was ended with a presentation from Sam BowerCraft, Senior Manager, of McKonly & Asbury, LLP. Mr. BowerCraft discussed issues regarding Fraud in the Construction Workplace and techniques and methods to detect and prevent fraud.

Click here to download a copy of the the presentation. 

To learn more about this event or information impacting the construction community, please contact the construction professionals of McKonly & Asbury, LLP.