U.S. Senators Lamar Alexander (R-TN) and Bob Corker (R-TN) today joined Sen. Kay Bailey Hutchison (R-TX) in introducing a bill to make the state sales tax deduction permanent.
“Over 530,000 Tennesseans received average deductions of $400 on their 2004 federal tax returns, resulting in over $200 million in tax savings,” said Alexander. “Making this deduction permanent makes good economic sense and is the fair thing to do.”
“This is a common sense piece of legislation that will provide tax fairness for Tennesseans,” said Corker. “I’m proud to cosponsor this bill to make the state sales tax deduction permanent.”
Nationwide, state and local sales tax collections account for about a quarter of total state tax revenue, which is about the same as property taxes and income taxes. The difference is that the provision allowing people who pay state and local sales taxes to deduct them from their federal income tax is not permanent.
The Senators noted that the Tax Relief and Health Care Act of 2006 – a comprehensive package of tax, health, trade, and energy provisions that passed the Senate in December and was signed into law by the President – extends the state and local sales tax deduction for Tennesseans for two years.
Before Congress passed a bill containing a two-year deduction in 2004, individuals were only permitted to deduct income and property taxes from their federal tax returns. Seven states – Alaska, Texas, Florida, Wyoming, Washington, South Dakota, and Nevada – do not have a state income tax. Two states – Tennessee and New Hampshire – only impose an income tax on interest and dividends, but not wages. Therefore, residents of those states who itemize were placed at a disadvantage simply because these states choose to raise revenue primarily through a sales tax instead of an income tax.