Senator Lamar Alexander (R-Tn.) on Friday announced he would be working with Rep. Marsha Blackburn (R-Tn.) to preserve the state sales tax deduction, a provision allowing taxpayers in states with no income tax, such as Tennessee, to deduct their state sales tax payments from their federal income tax.
Senator Alexander said, “Tennesseans shouldn’t pay a greater share of taxes than other taxpayers, simply because we pay sales tax instead of income tax. Preserving this deduction is a matter of fairness, and it will keep an average of $400 in the pockets of more than half-million Tennesseans who itemize their taxes.
“Rep. Blackburn was the leader in restoring the deduction in 2004 and she’s the leader now in the effort to ensure it is extended again. I look forward to working with her to preserve this important tax provision.”
The U.S. tax code contains a permanent provision allowing for the deduction of state income tax from federal income tax payments. Tennesseans, along with residents of Alaska, Texas, Florida, Wyoming, Washington, South Dakota and Nevada, don’t pay income tax, but allowing deduction of sales taxes has put them on equal footing with taxpayers in other states who can deduct their state income taxes from their federal tax obligation.
The sales tax deduction is not, however, a permanent part of the tax code. Congress passed a tax relief bill in 2004 permitting sales tax deduction for two years. Congress has extended that deduction in two-year increments since.
The deduction expired at the beginning of 2012. A temporary extension is included in the tax extenders bill reported by the Senate Finance Committee, which addresses several expiring tax provisions that make up the "fiscal cliff."
Senator Alexander recently joined Senators Kay Bailey Hutchison (R-Tx.) and Maria Cantwell (D-Wa.) in sending a letter to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell urging the extension of the deduction for state and local sales taxes.
In 2010, 561,000 Tennesseans claimed the sales tax deduction.