HR4520 passed the House on 10/7/04 (and it’s equivalent – S1637) passed the Senate a while before that. This is the so called “American Jobs Creation Act.” A couple blogs make mention of the tobacco buyout clause added to HR4520. What I didn’t know about until last night while reading Bargain$hare was that there was another major ammendment that had been added that will greatly benefit all WA state residents.

We would, after the President signs the bill, be able to deduct state sales tax paid on our Federal Income Tax returns. From what I’ve seen of the thread (registration required) at B$ it looks like the IRS will be providing tax tables, but may allow deductions above the table amount for specific large purchases given reciepts (although I can’t help but think that’d be an audit flag…) A quote:

Before 1986 we could deduct sales tax as well as state income tax but that was before the tax rates were reduced with the 1986 Tax Reform Act.

However this act is mainly to benefit the residents of the 9 states that do not have state income taxes or only tax interest and dividends. This act would bring some equity to residents of those states but would be of little benefit to residents of the other states.

Under current law, individuals are only permitted to deduct state income and property taxes on their federal tax returns. Seven states ó Alaska, Texas, Florida, Wyoming, Washington, South Dakota, and Nevada ó do not have a state income tax. Two states – Tennessee and New Hampshire – only impose an income tax on interest and dividends, but not wages. Therefore, residents of these states who itemize are placed at a disadvantage simply because these states choose to raise revenue primarily through a sales tax instead of an income tax.