Letter to Majority Leader Harry Reid, and Republican Leader Mitch McConnell

Senator Kay Bailey Hutchison (R-Texas) led a bipartisan group of Senate colleagues in penning a letter to Senate leadership urging an extension of the deduction for state and local sales taxes by the end of the year.

This deduction "has the support of over 10 million Americans, who, because the deduction expired at the end of 2011, are at risk of losing the ability to deduct state and local sales taxes for the 2012 tax year," the Senators wrote. "As we approach the end of the year, and the forthcoming tax filing season, we ask for your support in reinstating this important deduction."

Residents of states which levy income taxes are able to deduct their state income taxes through a permanent deduction. However, the sales tax deduction was eliminated in 1986, penalizing residents in eight states which levy sales taxes in lieu of income taxes to fund state and local government operations: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Senator Hutchison has long been an advocate for the sales tax deduction. She secured a two year restoration of the sales tax deduction in 2004, and three subsequent extensions (in 2006, 2008, and 2010). More than 2 million Texans claim the deduction for state and local sales taxes, with each saving an average of $500 per year. Because the sales tax deduction expired at the end of 2011, however, it will not be available to Texas taxpayers for the tax year 2012 and beyond unless action is taken. Senator Hutchison is the sponsor of stand-alone legislation (S. 80) to make the sales tax deduction permanent. In August, the Finance Committee approved a retroactive, two-year extension (applicable for 2012 and 2013) in its package of tax extenders.

The letter was also signed by Senators Cantwell (D-WA), Cornyn (R-Texas), Enzi (R-WY), Nelson (D-FL), Thune (R-SD), Alexander (R-TN), Barrasso (R-WY), Heller (R-NV), and Johnson (D-SD). The full text of the letter is below:

November 19, 2012

Senate Majority Leader Harry Reid
522 Hart Senate Office Building
Washington, DC 20510

Senate Republican Leader Mitch McConnell
317 Russell Senate Office Building
Washington, DC 20510

Dear Majority Leader Reid and Republican Leader McConnell:

We have a number of important issues to address during the remaining days of the 112th Congress. One of our top priorities in the coming weeks is the extension of the deduction for state and local sales taxes, which has strong bipartisan support. More importantly, it has the support of over 10 million Americans, who, because the deduction expired at the end of 2011, are at risk of losing the ability to deduct state and local sales taxes for the 2012 tax year. As we approach the end of the year, and the forthcoming tax filing season, we ask for your support in reinstating this important deduction.

Providing the deduction for state and local sales taxes is a matter of fairness for millions of taxpayers in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Residents of states that levy income taxes have long been able to deduct these state income taxes through a permanent deduction. However, taxpayers in our states, which use sales taxes in lieu of income taxes to finance government services, have been treated inequitably since 1986, when the permanent deduction for state and local sales taxes was eliminated.

Congress successfully restored the deduction for state and local sales taxes in 2004 as part of the American Jobs Creation Act, albeit only on a temporary basis. As a result, taxpayers in our states must fight every year for the ability to deduct sales taxes paid to our state and local governments. With the most recent extension expiring at the end of 2011, action needs to be taken now to restore and extend the deduction of state and local sales taxes so that taxpayers in our states are not penalized with an obligation to bear a larger share of the federal tax burden.

This deduction impacts the effective tax rates of taxpayers and equates to real money in the pockets of the 22 percent of Americans who claim the state and local sales deduction on their itemized tax return. Extending this deduction will help put money back in the pockets of taxpayers in our states and stimulate economic growth.

We face many tough decisions in the next few weeks. The extension of the state and local sales tax deduction should not be one of them. We urge you to ensure that our constituents receive fair treatment under the tax code and pass an extension of the state and local sales tax deduction as soon as possible. We look forward to working with you on this critical issue.