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Senate To Decide Whether To Renew Sales Tax Break

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By BILLY HOUSE, The Tampa Tribune

Published: December 1, 2007

WASHINGTON - A special tax break that saves Florida residents as much as $1 billion a year is up for renewal when the U.S. Senate reconvenes here next week.

Set to expire Dec. 31, the law allows residents of Florida and six other states without income taxes to deduct state and local sales tax from their federal taxable income. The break has been renewed every two years. But Florida GOP Sen. Mel Martinez argues the law should be made permanent.

A two-year renewal is expected. But even if lawmakers fail to renew it, Floridians filing their taxes next spring will not be affected because the existing law remains in place throughout the 2007 tax year.

Along with Florida, the special break lowers federal tax bills for some residents in six other states that also don't have income taxes - Tennessee, Nevada, Texas, Washington, South Dakota and Wyoming.

Before the sales tax deduction was re-enacted in 2004 (it had been eliminated in 1986) these states argued that they were treated unfairly by the federal tax code, because citizens in most other states could deduct state and local income taxes.

Savings Hard To Calculate
Exact numbers for how much in actual tax savings Floridians realized in 2005 from the sales-tax deduction were not available from either the Internal Revenue Service or the U.S. Department of the Treasury.

But the IRS reports that 2.2 million Floridians took the sales tax deduction in 2005, the last year for which figures are available, and were able to reduce their adjusted gross incomes for tax purposes by more than $3 billion, for an average reduction of $1,391 per filer.

By lowering their adjusted gross incomes in this way, these taxpayers were allowed to pay the government less, and in some cases help move themselves into lower tax brackets.
Rough estimates put the actual tax savings for Floridians at about a third of the total amount they were able to reduce their adjusted gross incomes by with the sales tax deduction, or about $1 billion.

But spokesmen for both the IRS and Treasury emphasize that is difficult to precisely determine, because the amount a taxpayer is able to deduct is set by a formula, and that other deductions also play roles in determining how much each taxpayer ultimately pays.

In recent years, this special tax deduction has been used as a political bargaining chip inserted to help get other legislative initiatives passed.

Pushing For Permanence

Martinez is among a handful of lawmakers - most from the states that would benefit - who are sponsoring or co-sponsoring a bill to make the deduction permanent.

"This is a matter of fairness. Most states have an income tax; Florida has a more progressive tax structure. Floridians deserve the same treatment when it comes to deductibility," said Martinez.

But the Center on Budget and Policy Priorities, which studies the impact of government policies on the poor, noted in a 2004 study that the sales tax deduction is only available to taxpayers who itemize their deductions - group that tends to be the higher-income taxpayers - rather than those who use the standard deduction.

In Florida, only 2.7 million of the state's 8.4 million federal taxpayers filed itemized returns in 2005, and 2.2 million Floridians took the sales tax deduction.

That means nearly three-fourths of Florida's federal taxpayers in 2005 saved nothing under this tax break.

Some say that it is unlikely that the break will ever be made permanent. The reason: It doesn't directly benefit the other 43 states and making it permanent has gained little attraction from lawmakers nationwide.

Chris Kinnan, a Bradenton native who is the Washington-based spokesman for Freedom Works, a group that advocates lower taxes, said a reason why the sales tax deduction likely will not be made permanent is that it has become "part of the gamesmanship, a chip to be used in the budgeting process."

This year, the language to renew the bill through 2008 is just one of several tax breaks expiring at year's-end that have been wrapped into one bill.

The House has already passed the measure, which included new tax revenue to offset the cuts so that the federal deficit doesn't grow.

But in the Senate, the measure was blocked by Republicans before lawmakers adjourned this month.

A spokeswoman for Senate Finance chairman Max Baucus, a Democrat from Montana, said the senator hopes to work with other lawmakers to complete quick action on a compromise he's proposed so that all the expiring tax provisions get extended.

Reporter Billy House can be reached at (202) 662-7673 or bhouse@tampatrib.com.

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