WASHINGTON - U.S. Senator Lamar Alexander (R-TN) announced Wednesday he's a cosponsor of two pieces of legislation, one offered by Sen. Dean Heller (R-NV) and the other by Sen. Maria Cantwell (D-WA), that would make permanent the federal tax deduction for state and local sales tax. The deduction allows residents in states with no income tax, such as Tennessee, to deduct their state and local sales tax payments from their federal income tax.
"This is a matter of fairness. Tennesseans shouldn't pay a greater share of taxes than other taxpayers, simply because we pay sales tax instead of income tax. Making this deduction permanent will provide certainty to Tennesseans who itemize their taxes and allow them to plan their family budgets," said Alexander.
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, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming, don't pay income tax. Allowing the 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, which has been extended incrementally four times, until it expired on Dec. 31, 2013.
In 2011, over 556,000 Tennessee filers claimed the deduction for state and local sales tax and reduced their taxable income by a $1.23 billion.