This week, U.S. Senator Maria Cantwell (D-WA) introduced her first bill of the 113th Congress: Bipartisan legislation (S. 41) to make the state and local sales tax deduction permanent. Cantwell introduced the bill yesterday with Senators Mike Enzi (R-WY) and Bill Nelson (D-FL).
The bill would ensure tax fairness for Washingtonians and for taxpayers in other states without an income tax. It would also end the rollercoaster ride of uncertainty taxpayers face because of the deduction's temporary extensions over the years.
"The sales tax deduction puts an average of nearly $500 back into the pockets of 950,000 Washingtonians," Cantwell said. "Making this deduction permanent would end the uncertainty these taxpayers face and extend tax fairness to Washington state. It is time to correct this inequity in the tax code and provide certainty for Washington taxpayers."
Earlier this month, Senator Cantwell led the effort to pass into law a two-year extension of the state and local sales tax deduction, covering calendar years 2012 and 2013. The inclusion of the sales tax deduction in the fiscal cliff deal capped off a year-long fight by Cantwell for its extension.
In August 2012, Cantwell helped pass a bipartisan bill in the Senate Committee on Finance that included a two-year extension of the sales tax deduction. In March 2012, she and Senator Marco Rubio (R-FL) introduced an amendment to extend the deduction for one year. In February 2012, Cantwell sent a bipartisan letter with 14 other Senators 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 calling for an extension of the sales tax deduction. She secured an extension of the sales tax deduction in December 2010 -- which expired at the end of 2011.
This new bill would make the state and local sales tax deduction a permanent part of the tax code. For 2010, the most recent year of published IRS data, more than 950,000 Washingtonians took advantage of the state and local sales tax deduction and reduced their taxable income subject to federal income tax by more than $2 billion. In addition to Washington state, taxpayers in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming also benefit from the sales tax deduction. In 2010, taxpayers across the nation reduced their taxable income by $17.9 billion with the deduction.
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 deductions 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.