Senate Finance Committee Passes 2-Year Extension of State Sales Tax Deduction
Tax bill includes Cantwell-backed tax cuts for hiring veterans, building affordable housing and producing clean energy
WASHINGTON, D.C. – Today, the Senate Finance Committee passed tax legislation that would ease the tax burden of nearly 928,000 Washington taxpayers by extending their ability to deduct state and local sales taxes from their federal income tax filings. At a committee markup today, U.S. Senator Maria Cantwell (D-WA) strongly supported the two-year extension of the state and local sales tax deduction, and urged her colleagues to support the measure.
The state and local sales tax extension was included as part of the Expiring Provisions Improvement Reform and Efficiency Act, which would renew a package of tax incentives that lapsed at the end of 2013. The Senate Finance Committee approved the legislation by voice vote during a Thursday hearing, allowing it to move to the full Senate for a vote.
The bill also includes previously expired tax credits that have helped Washington businesses hire veterans, build low-income housing, invest in research and development, and produce clean energy. The bill also provides benefits for public transit users.
The state and local sales deduction is available to taxpayers who itemize their returns for 2013, which are due on April 15. But, without Congressional action, it will not be available for 2014 taxes filed in April of 2015. The bill approved Thursday temporarily extends the sales tax deduction for another two years: 2014 and 2015.
Cantwell has led the effort during the last decade to ensure the deduction remains in effect and to provide tax fairness for taxpayers in Washington state and other states that don’t have an income tax, and therefore, can’t claim a state income tax deduction. Washington is among eight states, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming, that benefit from the sales tax deduction.
“The bipartisan effort today is to ensure predictability and certainty that will help grow our economy,” Cantwell said at today’s Finance Committee hearing. “We would like to make the state and local sales tax deduction permanent and have parity with other states. The 24 percent of Americans who claim state and local sales tax deductions shouldn’t constantly have to question whether they will be able to make that deduction. I’m pleased we’re moving forward but we have to be more aggressive on this issue.”
Cantwell, along with Sen. John Thune (R-SD), introduced an amendment to make the deduction permanent but the amendment did not come up for a vote.
Cantwell fought to get the sales tax deduction extended in the deal that Congress reached Jan. 1, 2013, to avert the fiscal cliff. That extension covered the calendar years of 2012 and 2013, and expired Dec. 31.
Approximately 928,000 Washingtonians took advantage of the state and local sales tax deduction and reduced their taxable income subject to federal income tax by $1.9 billion, according to IRS data from 2011. In 2010, taxpayers across the nation reduced their taxable income by $15.3 billion with the deduction.
“My number one priority here is to make sure that we are continuing to support economic growth in the United States and job growth,” Cantwell said. “The majority of these provisions provide incentives for business investment and return to taxpayers, which in turn, increases local spending and aids our economy.”
The Expiring Provisions Improvement Reform and Efficiency Act also extends for two years several other provisions critical to Washington state:
- Veterans’ Work Opportunity Tax Credit: Encourages businesses to hire returning veterans through a tax credit of up to $9,600. Approximately 1,800 veterans in Washington state were hired with aid of the tax credit in 2013. Cantwell called for extending the credit, and in 2012, Cantwell toured In Home Medical, a veteran-owned small business in Pasco specializing in home medical equipment that hired veterans with the tax credits.
- Low Income Housing Tax Credit: An incentive to get more affordable housing built in hard-to-serve areas and challenging areas because of high-cost. Cantwell won approval of an amendment that replaces the floating rate used by the program for acquiring and refurbishing existing property with a 4 percent fixed rate and was able to ensure continuation of the fixed 9 percent rate for new construction. Since the program was created in 1986, it has helped finance more than 2.4 million affordable apartments nationwide, including more than 56,000 in Washington, and has supported 95,000 jobs annually – many of which are in the small business sector.
- New Markets Tax Credit: Encourages investment in economically challenged areas. Cantwell is a long-time supporter of the New Markets Tax Credit, which has supported thousands of jobs in Washington state and more than 350,000 jobs across the nation. In Washington state, between 2003 and 2010, $650 million in NMTC investments leveraged more than $1.2 billion in total project investments and helped create nearly 6,000 full-time jobs and 8,000 construction jobs. In 2011, Cantwell visited Seattle Children’s Research Institute to see how the NMTC helped it expand and hire 150 workers. Earlier that year, Cantwell also saw how Farwest Steel in Vancouver was used the tax creditto help build a fabrication and processing facility at the Port of Vancouver that supported 300 construction jobs.
- Commuter Tax Benefit: Under previous law, workers were able to set aside $245 per month in pre-tax money for public transit use, which is the same amount drivers get for parking costs. The transit benefit dropped to $130 per month, affecting about 1,600 employers in King County. Cantwell has called for parity for transit users and the legislation passed today would provide a pre-tax benefit of $250 for both transit and parking costs. Additionally, an amendment by Sen. Chuck Schumer was approved that would make bike-share membership also eligible for the benefit. Seattle expects 4,000 riders when the city launches its bike share program in 2014.
- Research and Development: Provides businesses a 20 percent credit for research spending that exceeds predicted R&D costs for that year. Since its enactment in mid-1981, the credit has been extended 15 times and significantly modified five times. In addition, Cantwell cosponsored a bipartisan amendment that enables small startups to use the credit and increase domestic innovation.
- Biodiesel tax credit: Would extend the $1-per-gallon tax credit for biodiesel producers. Industry growth stopped after Congress let the credit expire in 2012 and production remained flat at just under 1.1 billion gallons – the same level as 2011. When the credit was reinstated in 2013, the U.S. biodiesel industry produced1.8 billion gallons in that year. Cantwell and Sen. Chuck Grassley (R-IA) introduced separate legislation earlier this year to renew the credit.
- Wind production: Cantwell introduced a bipartisan amendment with Sen. Charles Grassley (R-IA) to extend the wind production tax credit for another two years. The committee accepted the amendment today.
Cantwell also highlighted a need to revise the tax code to provide better relief for those affected by natural disasters. She cited the challenges of those affected by the March 22 mudslide outside Oso, Washington that has killed 30 people and destroyed dozens of homes. Many still are missing
“This is one of the worst disasters in our state’s history. It definitely has an impact on major businesses –the major employers in the community – so I want to work with my colleagues who faced similar issues with (Hurricane) Sandy and make sure we are updating our code as it relates to disaster relief,” Cantwell said.
A transcript of Cantwell’s opening statement during the hearing is available below:
Senator Cantwell: Thank you Mr. Chairman, and thank you for holding this hearing and for talking about these important issues for individuals in our state. The bipartisan effort today here is to ensure predictability and certainty that will help grow our economy.
Before I start I would like to say something about the communities of Oso, Darrington, and Arlington, Washington. These communities have been through a very painful process facing one of the worst disasters our state has seen, and I would like to thank all my colleagues for their comments and support on this issue. In the future, we would like to join our colleagues who are on this committee who have also dealt with natural disasters in the discussion of how natural disasters impact businesses and some of the things that we can do to help provide for relief.
My number one priority here is to make sure that we are continuing to support economic growth in the United States of America and job creation, and many of these provisions which expired in 2013 are important to just that. The majority of these provisions provide incentives for business investment and return to taxpayers, which in turn increases local spending and aids our economy. The state and local sales tax deduction is of particular importance to my state and to Texas, Wyoming, Florida, South Dakota, Nevada, Alaska, and Tennessee. And while we would like to make this permanent and on parity with other states, I know that my colleagues Senators Thune, Nelson, Cornyn, and Enzi agree with me, so we will be offering something to make that deduction permanent. But I am glad that we are at least continuing that deduction since it lapsed in 1986, and we brought it back in 2004. The 24% of Americans who claim state and local sales tax deductions shouldn’t constantly have to question whether they will be able to make that deduction. So I am pleased we are moving forward, but we have to be even more aggressive on this issue.
I also want to comment on the extending tax provisions that are also helping our economy grow- the wind production tax credit; the Low-Income Housing Tax Credit; the New Market Tax Credit; the biodiesel tax credit; the Veterans Work Opportunity Tax Credit; R&D. All of these things are so essential for businesses to have predictability and to basically leverage further private sector investment. Businesses plan ahead and so, that means they need the certainty to do so. For example, the New Market Tax Credit which provided tax investment to invest in low income communities. Between 2003 and 2010, it cost the federal government $5.4 billion in New Market tax credits, but it generated $45 billion in investment -- in a leverage of approximately 8 to 1. To me, those are the things that we should be doing to help our economy.
The Veterans Work Opportunity Tax Credit - another success story - giving employers who hire veterans a tax break. It has helped companies in my state hire veterans and it has helped them get a workforce. The biodiesel tax credit- it has lapsed, and the last time it lapsed, it resulted in a 42% drop in production in 2010, leading to a loss of about between 8,000-10,000 jobs and a reduction of $879 million in real GDP and a drop of household income $485 million. So to me, Mr. Chairman, these are real issues about real investment strategies and nothing could be more important - I think, right now - than a biodiesel market that helps us in our huge competitive nature with getting a new aviation jet fuel. We are very close to having a drop in jet fuel that will help the United States of America continue to be competitive in aviation manufacturing and aviation in general. But this is exactly why we need certainty and predictability. I also just want to mention the Low-Income Housing Tax Credit which also has been leveraged and fills the gap, and I will have a lot more to say about the solar tax credit- what I think is germane to this legislation. But I see my time has expired, Mr. Chairman, and again, thank you for getting this bipartisan measure, and to Senator Hatch for working across the aisle to help us get this legislation before the full Senate.
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