Congress-Passed James Zadroga 9/11 Act Includes New Excise Tax On Foreign Procurement Payments

On December 22, Congress passed H.R. 847, the “James Zadroga 9/11 Health and Compensation Act of 2010” (the Zadroga Act). This legislation, which provides relief to 9/11 first responders and recovery and cleanup workers who got ill after working at the World Trade Center site, carries an offset provision that imposes a new excise tax on certain foreign persons providing goods and services to the federal government.

Effective for payments received under contracts entered into on and after the enactment date, the 2010 Zadroga Act imposes on any foreign person that receives a specified Federal procurement payment a tax equal to 2% of the amount of the specified Federal procurement payment. (Code Sec. 5000C, as added by Zadroga Act Sec. 301)

A “specified Federal procurement payment” is any payment made under a contract with the U.S. for:

1.the provision of goods, if the goods are manufactured or produced in any country which is not a party to an international procurement agreement with the U.S., or
2.the provision of services, if the services are provided in any country which is not a party to an international procurement agreement with the U.S. (Code Sec. 5000C(b))
A foreign person is any person other than a U.S. person. (Code Sec. 5000C(c))

The amount deducted and withheld under chapter 3 of the Code (Withholding of Tax on Foreign Persons, Code Sec. 1441 through Code Sec. 1446) will be increased by the amount of tax imposed on a specified Federal procurement payment. (Code Sec. 5000C(d)(1)) For purposes of subtitle F of the Code (Procedure and Administration, Code Sec. 6001 through Code Sec. 7874), any tax imposed by the new excise tax provision will be treated as a tax imposed by subtitle A of the Code (Income Taxes, Code Sec. 1 through Code Sec. 1564). (Code Sec. 5000C(d)(2))

The head of each executive agency is directed to take any and all measures necessary to ensure that no funds are disbursed to any foreign contractor in order to reimburse the tax imposed under Code Sec. 5000C. (Zadroga Act Sec. 301(b)(1))

The Administrator for Federal Procurement Policy is directed to annually review the contracting activities of each executive agency to monitor compliance with the above requirements. (Zadroga Act Sec. 301(b)(2))

The above rules are to be applied in a manner consistent with U.S. obligations under international agreements. (Act Sec. 301(b)(4))