Senate panel Oks deduction for sales tax payments

The Senate Finance Committee on Thursday supported a two-year extension of a tax deduction for sales tax payments for residents of Washington and seven other states with a sales tax but no income tax.

The measure, included in a larger bill dealing with tax credits, would extend the credit by two years through 2013.

The bill now heads to the full Senate and House. Washington Sen. Maria Cantwell, a member of the finance committee, said Thursday's 19-5 bipartisan support offers a hopeful sign that lawmakers will deal with the tax deduction and related issues in September, following an upcoming recess. "It shows we can work together to do tax reform legislation," Cantwell, a Democrat, said in a phone interview.

Nearly 850,000 Washingtonians took advantage of the state and local sales tax deduction in 2009, the last year of available data from the Internal Revenue Service, Cantwell's office said. The state's residents reduced their taxable income by more than $1.8 billion that year. The state's taxpayers received tax breaks of around $400 million, or an average of almost $500 per tax filer, the senator's office said.

Cantwell said in an interview that the measure is of particular importance to Clark County, since it reduces the incentive to shop tax-free in Oregon.

The deduction has a long legislative history. It was included in the tax code until 1986, when it was eliminated until 2004, according to Cantwell's office. Once restored, the deduction was extended several times but became tangled in partisan politics in 2010.

An extension was finally signed into law in December of that year. The late approval created administrative problems for the Internal Revenue Service, and the agency could not process tax returns with the deduction until mid-February 2011.

The new legislation, which Cantwell said was 18 months in the making, would settle the issue for the next two years. Taxpayers in Alaska, Florida, Nevada, Tennessee, Texas, South Dakota, and Wyoming also benefit from the sales tax deduction.

The bill approved by the finance committee also includes extension of several tax credits, including the New Market Tax Credit that was used by Farwest Steel to finance its facility at the Port of Vancouver. The company is expected to bring 200 new and existing jobs to the area.

Other measures included in the bill are "Returning Heroes and Wounded Warriors Work Opportunity Tax Credits" to businesses that hire qualified veterans; clean energy tax credits that encourage production of biodiesel and biomass fuel sources; and research and development credits for businesses that pursue key research breakthroughs that could benefit the larger economy.