Congress Reinstates Sales Tax Deduction for Washington Taxpayers After 18 Years

Legislation authored by Sens. Cantwell and Hutchinson in Senateand Rep. Baird in House on its way to the President's desk

WASHINGTON, D.C. – The U.S. Senate today approved a measure allowing Washington state taxpayers to deduct state and local sales taxes from their 2004 federal income tax return.

“For the last 18 years Washington state residents have been forced to shoulder an unfair share of the tax burden,” Cantwell said. “This relief will grant tax fairness to Washington state families, and is a shot in the arm for our local economy.”

Cantwell's legislation, the Sales Tax Equity Act (S. 467), will give Washington state residents an average tax cut of $519 to $575. The state Department of Revenue estimates that residents should save a total of $421 million per year, giving the state's economy a substantial boost.

Currently, in most other states, taxpayers are allowed to deduct state income tax from their income that is taxed by the federal government. However, residents of states that have no state income tax but have a higher sales tax have not been allowed a sales tax deduction since changes to the tax code were made in 1986. The change affects seven states, including Washington.

The legislation was sponsored in the Senate by Senators Maria Cantwell (D-WA) and Kay Bailey Hutchison (R-TX) and in the House by Congressman Brian Baird (D-WA-03).

A two-year sales tax deduction was included in the final version of the Foreign Sales Corporation/ Extraterritorial Income Exclusion (FSC/ETI) bill (H.R. 4520), which will now be sent to the President for his signature. The bill passed the U.S. Senate 69-17.