Cantwell, Rubio Introduce Bipartisan Amendment to Extend State Sales Tax Deduction for 2012

Senators call legislation a bipartisan push for tax fairness

WASHINGTON, D.C. – Today U.S. Senator Maria Cantwell (D-WA) and U.S. Senator Marco Rubio (R-FL) introduced an amendment to extend the state and local sales tax deduction for one year. The deduction, which expired at the end of 2011, provides tax fairness to residents of eight states without an income tax.

Taxpayers in Alaska, Florida, Nevada, Tennessee, Texas, South Dakota, Washington and Wyoming benefit from this deduction. In 2009, the most recent year for which official data is available, taxpayers deducted less than $16 billion in state and local sales taxes, a small fraction compared to the $236 billion in state and local income taxes deducted on federal returns. But for taxpayers in these eight states, this deduction helps reduce their taxable incomes by billions of dollars a year.

“This bipartisan effort is about fairness for Washington state’s taxpayers,” said Cantwell. “This deduction puts an average of $500 back in Washingtonians’ pockets and has support from both sides of the aisle. We need to make sure that Washington and Florida workers aren’t losing their hard-earned income because of an unfair section of the tax code. Our bipartisan amendment would extend the deduction, creating certainty in the near future for Washington state taxpayers.”

“Extending the state and local sales tax deduction is an important form of tax relief that ensures states like Florida without an income tax are treated fairly when paying their taxes,” said Rubio. “It’s critically important to put taxpayers in these eight states on equal footing with the rest of the country, put a little more money in their pockets and give them more certainty about the future.”

For 2009, the most recent year of published IRS data, nearly 850,000 Washingtonians took advantage of the state and local sales tax deduction and reduced their taxable income by more than $1.8 billion. The value of the deduction varies depending on individual filing status and tax rate, but the $1.8 billion in deductions translated into $500 million or more staying in the Washington state economy.

The itemized deduction allows taxpayers in states without an income tax to deduct the sales taxes they pay from their upcoming federal income tax returns. Cantwell secured an extension of the sales tax deduction in December 2010 – which expired at the end of 2011 – and has consistently argued for a permanent extension to ensure tax fairness and avoid the uncertainty of temporary extensions.

In a letter sent February 2nd to Senate Majority Leader Harry Reid, Senate Minority Leader Mitch McConnell, Senate Finance Committee Chairman Max Baucus, and Senate Finance Committee Ranking Member Orrin Hatch, 14 Senators called for an extension of the state and local sales tax deduction as part of a tax extenders package. 

For nearly two decades, taxpayers in each of the eight states without an income tax were penalized because the federal tax code did not allow deduction of state and local sales taxes. That disparity ended in 2004 when Congress successfully restored the deduction. For the first time since 1986, taxpayers in states that had 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.