Tuesday, October 12, 2004
Copyright © Las Vegas Review-Journal

Nevadans to benefit from sales tax deduction's return

Michael Rodgers, president of Rodgers & Rodgers Tax and Business Services, researches the sales tax deduction at his Las Vegas office Friday. Photo by K.M. Cannon.

WASHINGTON -- Gaylyn Spriggs can remember two decades back when she would keep every grocery and department store receipt in a shoebox on a closet shelf. She would pull them down in the spring when she calculated her taxes.

In the days before personal finance software, Spriggs kept the paper slips and recorded her purchases in a logbook so she could claim every single penny for sales tax deductions.

"I wanted to make sure I had my ducks in a row," said Spriggs, a research analyst in Carson City. "I had enough deductions there that it made a difference to me. Every dime I got to keep was great."

Spriggs is preparing to resume her record-keeping now that Congress has given Nevadans and residents of a half dozen other states the ability at least for the next two years to deduct state and local sales taxes if they itemize.

The deduction was repealed in a 1986 tax reform bill but restored in a new $136 billion corporate tax bill carrying benefits for manufacturers and dozens of special interests. President Bush is expected to sign the bill into law.

The deduction is available for 2004 and 2005. So Nevadans will see a benefit when they fill out their forms next spring.

"I think many Nevadans will be very happy, and the reason is if you take a look at the sales tax reports," said Carole Vilardo, president of the Nevada Taxpayers Association.

Las Vegan Michael Rodgers said he "absolutely" would take advantage of the deduction again. For 17 years, Rodgers has helped people prepare their income tax returns, and in the 1980s advised many of his clients to do what he calls "the waste paper basket deal."

"You have one can for garbage and another can for receipts, and at the end of the year you add up all the receipts," Rodgers said. The practice usually saved several hundred dollars a year.

Nevada collected $2.5 billion in state and local sales taxes in the fiscal year that ended June 30, according to the state Department of Taxation, a 13 percent increase over the previous year.

Estimates of the tax benefits for individual Nevada families have varied. A Joint Committee on Taxation report based on 2001 data estimates savings at between $55 and $420 depending on income and family size.

Proponents of the restored tax break cite a July 8 Congressional Research Service report indicating Nevadans in the 28 percent tax bracket could save an average $350 while taxpayers in the 31 percent bracket could get back an average $380.

The Congressional Research Service estimated in July that tax savings for Nevadans overall would total $242 million each year.

Keith Schwer, director of the Center for Business and Economic Research at UNLV, said that might be a drop in the bucket compared to the $70.5 billion Nevadans generated in personal income last year, and may not ripple far through the economy.

But still, Schwer said, "It could be important for some people on the margins. It will for some prove to be important for things they need to buy. For others it will be a welcomed shopping trip."

Nevada vendors have begun to anticipate the extra dollars in the pockets of potential buyers.

The prospect of being able to write off $1,500 or more from the cost of a car might pull more people into auto showrooms, said John Barr, general sales manager for Findlay Toyota on Auto Show Drive in Henderson.

"This could be a shot in the arm for the car business," Barr said. "Buyers would obviously have this in their back pocket" as a negotiating tool.

"If you are going to buy a high ticket car, like a Corvette or a Suburban, that could add up to $3,500 in taxes. That's a lot of money," said Don Kot, a sales manager at Fairway Chevrolet on East Sahara Avenue.

Vilardo said new Nevada homebuyers, of which there are thousands each year, will see tax savings from purchases of furniture and home appliances.

Clark County residents pay a combined 7.5 percent sales tax, which could increase next July by another quarter percentage point if voters in November approve an initiative to boost spending on police.

The new law was written to allow all federal taxpayers to deduct state and local sales taxes instead of their state income taxes. But it assumes most taxpayers will choose to deduct their income taxes which tend to be more costly.

So the true beneficiaries are residents in seven states that do not have a broad-based income tax. They are Nevada, Tennessee, Texas, Washington, South Dakota, Florida and Wyoming.

Officials from those states agitated to restore the tax break that was repealed in 1986. They argued it was unfair for constituents to be deprived a tax break because their states chose to tax consumption rather than income.

"This was a fairness issue more than anything," said Sen. John Ensign, R-Nev. "Nevada and the other states chose a different tax structure."

The new law allows taxpayers to deduct the actual amount of sales taxes paid, or an amount the Internal Revenue Service will calculate in tax tables based on adjusted gross income, filing status, number of dependents and the local and state tax rates.

The sales tax charts will be included in the agency's instructions for completing Schedule A, the form for itemized deductions.

People who bought a new "motor vehicle" or a boat this year or next year will be allowed to add that sales tax on top of the IRS-calculated deduction. The law allows the Treasury Secretary to identify other "big ticket" items whose sales tax could be similarly added to the IRS chart.

Review-Journal writer Juliet V. Casey contributed to this report.