Extension of State Sales Tax Deduction Now Law

Extension of State Sales Tax Deduction Now Law

President Signs Two-Year Extension; Cantwell Says Permanent Sales Tax Deduction a Priority in New Year

Wednesday, the president signed into law a two-year extension of the state sales tax deduction, meaning that Washington state taxpayers who itemize can continue claiming a federal deduction for the state and local sales taxes they pay. U.S. Senator Maria Cantwell (D-WA), who has fought for months to extend the deduction, applauded the move and promised to make a permanent sales tax deduction one of her top priorities when Congress reconvenes in 2007.

"This is great news for our economy and for so many Washington families who will now be able to save hundreds of dollars each on their taxes this year," said Cantwell, an incoming member of the Senate Finance Committee. "But we need to make sure this deduction doesn't come down to the wire every single year. That's why I'm pushing for a permanent deduction, because a simple matter of tax fairness like this isn't something we should have to fight for year after year."

To take advantage of the deduction, tax filers should obtain IRS Publication 600, which will be made available on the IRS website within the next week. Hard copies of Publication 600 will go out in the mail after the holidays and will be available at local IRS offices, libraries, post offices, and other locations that provide tax forms. Cantwell will post information as well as links to the forms on her website (http://cantwell.senate.gov) soon after the forms are made public.

Cantwell has introduced stand-alone legislation in Congress that would make the state sales tax deduction a permanent feature of the U.S. tax code, and plans to reintroduce the legislation after the start of the 110th Congress in January. The most recent extension expires as the end of the 2007 tax year, and Cantwell will work to get a permanent deduction in place well before the current extension expires.

The tax extenders legislation passed by Congress earlier this month and signed into law by the president on Wednesday extends the state sales tax deduction, the research and development tax credit, a deduction for teachers who use their own money to buy supplies for their classrooms, and a deduction for college tuition. The legislation also undoes drastic reimbursements rate cuts to physicians who treat Medicare patients. Without the reversal of these cuts, seniors would have had even more difficultly accessing affordable healthcare.

Washingtonians who itemize their deductions can expect to save an average of $519 to $575 if they take the sales tax deduction. According to the Economic and Revenue Forecast Council, the deduction brings an estimated 2,000 to 3,000 jobs to Washington state and each dollar retained in the state through this deduction results in approximately 50 cents in economic stimulus. According to the Congressional Research Service, the estimated loss to state residents that would result from the expiration of this deduction totals $488 million to $541 million per year.

In most states, taxpayers can deduct state income taxes from their total income taxed by the federal government. However, from 1986 until 2004, residents of states with a higher sales tax in place of state income taxes went without a deduction for sales taxes. In 2004, Cantwell worked with a bipartisan group of senators and representatives to get this deduction signed into law. Since then, Cantwell has fought continuously to extend the deduction and make it permanent.

http://cantwell.senate.gov/news/record.cfm?id=267057&&days=30&