Cantwell Continues Push for State and Local Sales Tax Deduction

Senator stresses importance of extending the tax deduction before end of year; roughly 1 million Washingtonians would benefit

WASHINGTON, DC – Today, U.S. Senator Maria Cantwell (D-WA) insisted that the Senate not leave for the year without extending the federal income tax deduction for state and local sales taxes. This itemized deduction, which would not be available for 2010 tax returns without congressional action, allows taxpayers in states without an income tax to deduct the sales tax they pay in 2010 on their upcoming federal income tax returns.  Inclusion of the deduction would put an average of $500 more in the pockets of Washington taxpayers. In a letter to Finance Committee Chairman Max Baucus (D-MT), Cantwell urged passage of this provision before adjournment to avoid complications when Washingtonians file their tax returns.  If the deduction is extended retroactively sometime next year, many Washingtonians would need to file amended returns, adding to economic uncertainty, causing unnecessary headaches and delaying tax refunds.

“The state sales tax deduction helps ensure Washingtonians receive the same tax benefits as citizens in other parts of the country,” said Senator Cantwell.  “We must extend the state sales tax deduction now in order to prevent around a million Washington state filers from forgoing tax relief they deserve or from having to deal with the headache of amending their tax returns in the future.  In this time of economic uncertainty, it is especially important to make sure Washington families can get consistent, predictable deductions that they can plan around.”
In 2007, the most recent year of published IRS data, more than 975,000 Washingtonians took advantage of the deduction, reducing their taxable income by $2.3 billion. That translated into nearly $500 million staying in the Washington state economy instead of going to the U.S. Treasury in tax payments. The state sales tax deduction increases economic growth by drawing in new businesses, creating new jobs, and keeping more money in the state. Taxpayers in the states of Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming that also do not have a state income tax also benefit from this deduction.
For nearly two decades, Washington taxpayers were penalized because the federal tax code did not allow deduction of state and local sales taxes from their income tax.  In 2004, Cantwell fought to successfully restored the deduction.  For the first time since 1986, taxpayers in Washington and other states with no state income tax were able to deduct sales taxes from their federal income tax.  But the extension was never made permanent, requiring repeated approval by Congress.  Cantwell, a member of the Senate Finance Committee, has led the effort each year to ensure that the deduction is extended.  The most recent extension expired at the end of 2009. 
Full text of the letter follows below.
The Honorable Max Baucus, Chairman
Committee on Finance
United States Senate
Washington, DC 20510
Dear Mr. Chairman:
Thank you for your continued leadership as you work to assemble year-end tax legislation to extend expired and expiring tax breaks. While there has been a lot of activity in this area recently and progress is being made, it remains uncertain at this point whether and when Congress will enact such legislation. 
Although there are many expiring provisions which I strongly support extending before the 111th Congress adjourns, I write today to stress the importance of ensuring that the deduction for state and local sales taxes is extended before the end of the year. While I am encouraged that there is no doubt whether the sales tax deduction will be included in the tax bill that will come before the Senate in the next few days, I cannot stress enough the importance of timely action on the sales tax deduction.
As you know, the deduction for state and local sales taxes expired at the end of 2009 and is therefore not currently in effect for the 2010 tax year. As the year rapidly draws to a close and taxpayers and the Internal Revenue Service (IRS) prepare for tax filing season, the uncertainty surrounding the extension of the sales tax deduction is highly problematic, particularly for residents of Washington state. Unlike many expiring or expired tax provisions which can be extended retroactively with minimal inconvenience for taxpayers, inaction on the sales tax deduction has severe repercussions for millions of taxpayers in my state and nationwide.
To echo the concerns of IRS Commissioner Douglas Shulman in his recent letter to you, it will be extremely disruptive for millions of taxpayers if the sales tax deduction is not passed this year. As he stated, there will be significant complications that will stem from trying to re-program systems and publish new forms and instructions in the middle of a filing system. The cost of delay is disruptions for millions of Washingtonians whose returns may be delayed, or who may be forced to file without claiming the deduction and then file amended returns, delaying tax refunds and causing unnecessary headaches for taxpayers. In this time of economic uncertainty, it is especially important to make sure Washington families can get consistent, predictable deductions that they can plan around.
As you know, I sponsor legislation that would make the deduction for state and local sales taxes permanent. In my view that is the only way to avoid this uncertain situation in the future, and ensure that states that do not pay income taxes, such as Washington, can have tax parity along with states that can take advantage of the permanent state income tax deduction.
I appreciate your continued attention and leadership on these important issues. 
Maria Cantwell
United States Senator