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8A Page 3 IBudgef Continued from Page 1... The announcement was welcomed by most Capitol-watchers~ even as a state of high anxiety continues over the extent of program cuts and whether revenue increases could be structured to win the two-thirds needed for passage. . The "Big Five" budget discussions did occur this week, but little or no information about the details of a 'budget package had emerged. The League and cities continue to reiterate to legislators the importance of the state solving its budget problems without borrowing, shifting or taking local revenues. (See "League Testifies at Legislative Budget and Transportation Hearing", p. 1.) Comments Regarding the New IRS Withholding Requirements Are Due By March 5,2009 Cities that enter into large contracts for services or property have until March 5. to comment on - new tax withholding requirements being drafted by the federal Internal Revenue Service (IRS). The regulations will implement provisions of the Tax Increase Prevention and Reconciliation Act (TIPRA), passed in 2005. TIPRA's Subsection (3402(t)) requires any local government that pays $100 million or more in a calendar year to persons providing property or services to the government, including individuals, trusts, estates, partnerships, associations, and corporations, will be required to withhold 3 percent federal income tax. If the local government fails to withhold the tax required, it becomes liable for the payment of the tax. Withholding is required at the time of payment, and applies to all payments in any form (cash, check, credit card or payment card) with the exceptions listed below. The provisions will go into effect beginning Dec. 31, 2010. TIPRA is most commonly remembered for extending the reduced tax rates on capital gains and dividendst and reducing the alternative minimum tax requirements. The requirement does not apply to payments under contracts signed prior to Dec. 31, 2010. Cities should note the following exceptions from the withholding requirement: 1. Payments otherwise subject to withholding, such as wages. 2. Payments for retirement benefits, unemployment compensation, or social security. 3. Payments subject to backup withholding, if the required backup withholding is actually performed. 4. Payments for real property. 5. Payments of interest. 6. Payments to other government entities. foreign governments, tax exempt organizations, or Indian tribes. 7. Payments made under confidential or classified contracts, as described in IRe 6050M(e)(3). 8. Payments made by a political subdivision of a state. or instrumentalities of a political subdivision of a state that make annual payments for property or services of less than $100 million. 9. Public assistance payments made on the basis of need or income. However, assistance programs based solely on age, such as Medicare, are subject to the requirements. 10. Payments to employees in connection with service, such as retirement plan contributions, fringe benefits, and expense reimbursements under an accountable plan. 11. Payments received by nonresident aliens and foreign corporations. 12. Payments made by Indian tribal governments. 13. Payments in emergency or disaster situations. 3