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WASHINGTON, D.C. -- In the next two weeks, the United States House of Representatives will decide the fate of a key tax deduction for residents of Tennessee.
Congress is soon expected to vote on tax relief legislation (also called “Tax Reconciliation”) that includes a critical extension of the deduction for state sales taxes. If Congress does not pass this legislation, the deduction will expire at the end of 2005, and the result will be a tax increase for many Washington families.
Before the state sales tax deduction was enacted by Congress in 2004, states without a state income tax, like Tennessee, were treated unfairly by the federal tax code. That’s because residents of states that are funded by a state income tax are permitted to deduct those taxes from their federal tax, but there was nothing similar for states with only a sales tax.
Seven states—Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming— collect a state sales tax but do not collect a state income tax.
The 2004 passage of the American Jobs Creation Act fixed the problem by creating an equivalent state sales tax deduction option. Available for the 2004 and 2005 tax years, the state sales tax deduction finally treated states like Tennessee fairly. But now this important provision is in jeopardy. Ideally, Congress would entirely scrap the current tax code and replace it with one that is fair, flat, and simple, but until then, it must resist making taxes even less fair by failing to extend this measure.
FreedomWorks President Matt Kibbe commented, “If the federal government is going to have a state income tax deduction, Congress should treat all citizens fairly and extend the sales tax deduction as well. Congress shouldn’t discriminate against residents in Tennessee just because we have a sales tax and no income tax.
“This is a key issue for taxpayers across the country. FreedomWorks strongly urges the entire Tennessee delegation to vote for the tax reconciliation bill to extend the state sales tax deduction.