President Signs Tax Bill: New Regulations and Burdens on State and Local Governments: Several Portions of the New Tax Increase Prevention and Reconciliation Act of 2005 Significantly Impact State and Local Governments

By Gaffney, Susan; Berger, Barrie Tabin | Government Finance Review, August 2006 | Go to article overview

President Signs Tax Bill: New Regulations and Burdens on State and Local Governments: Several Portions of the New Tax Increase Prevention and Reconciliation Act of 2005 Significantly Impact State and Local Governments


Gaffney, Susan, Berger, Barrie Tabin, Government Finance Review


On May 17, President Bush signed the $70 billion Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). The tax bill was designed to provide a short-term solution to the increasing application of the alternative minimum tax and extend for two years, until 2010, the dividend and capital gains tax cuts that were enacted in the 2001 legislation. Also included in the bill were a handful of provisions that significantly impact state and local governments, which are highlighted below.

IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY GOVERNMENT ENTITIES

At the last minute, a 3 percent withholding and annual reporting requirement for federal, state, and local government contractors was included in the bill. This provision could have a significant financial and administrative impact on many large governments. The legislation states that beginning on January 1, 2011, governments that spend more than $100 million per year on goods and services will need to withhold 3 percent of the payments made to vendors and contractors, and remit that 3 percent to the federal government, similar to the manner in which payroll taxes are administered. The withholding requirement constitutes an unfunded mandate on state and local governments. The Congressional Budget Office estimated the cost to state and local governments for administering the provision would be $62 million (in 2006 dollars) per year.

This provision was not included in the original tax bills passed by the House or Senate, but instead was included in the conference meetings held between the leaders of the two chambers and placed in the final bill at the eleventh hour, one day before the House voted on final passage of the final bill. There are some exceptions to the rule including real property and payments in connection with a public assistance or public welfare program. Due to the vagueness of the legislative language, we have already begun to inquire about these exceptions, and other provisions under this heading that are confusing.

Senator Larry Craig (R-Idaho) introduced the Withholding Tax Relief Act of 2006, S. 2821, that would repeal this provision. The GFOA, along with the National Association of Counties and the National League of Cities, sent a letter to the Senator supporting this legislation. A copy of the letter and a link to the legislation may be found on GFOA's Web site.

As we combat this provision, the GFOA and other local organizations are asking their members for information to demonstrate to Congress the significant cost and administrative impact this new requirement will have on state and local governments. Additionally, we will work with colleagues in the private sector to create a coalition to repeal or substantially water down this provision before it becomes effective. As we meet with members of Congress and officials at the Department of the Treasury, we would greatly appreciate your thoughts on this issue--how it will impact your jurisdiction, the concerns with regard to vendor relations as well as the additional administrative time and costs that it would take to implement this law within your finance office. Please submit any information to Sgaffney@gfoa.org.

LOAN AND REDEMPTION REQUIREMENTS ON POOLED FINANCING REQUIREMENTS

As expected, Congress acted to place new requirements on pooled financings. While the final legislation included a significant change from the original proposal, the following requirements will be placed on pooled financings completed after May 17, 2006:

1. For pools other than state revolving funds, 30 percent of the ultimate borrowers must be identified prior to bond issuance.

2. All pools must lend 30 percent of the net bond proceeds in the first year and 95 percent by the end of three years--or those outstanding bonds will need to be redeemed.

3. The arbitrage rebate small issuer exception for entities that host a pool is eliminated.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

President Signs Tax Bill: New Regulations and Burdens on State and Local Governments: Several Portions of the New Tax Increase Prevention and Reconciliation Act of 2005 Significantly Impact State and Local Governments
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.