Lawmakers devise deal for sales tax deduction

WASHINGTON -- The Senate agreed Thursday to create space in the federal budget for Congress to write a permanent tax deduction for state and local sales taxes.

Lawmakers from eight states that benefit the most are expected to push follow-up bills that would cement the tax break into law.

By voice vote, senators added an amendment to the fiscal 2010 budget resolution creating a "reserve fund" to cover the cost of making the deduction permanent if the costs can be offset by revenues elsewhere to avoid deepening the federal deficit.

"Based on all the information we have, this would affect lots of people, almost a half-million in Nevada," said Sen. Harry Reid, D-Nev., the main sponsor. "At a time when families are struggling to make ends meet, every penny counts."

Filers were able to write off a part of their sales taxes until 1986, when the deduction was eliminated in a reform promoted by President Ronald Reagan.

The tax break was restored in 2004 but only made temporary and structured to benefit mainly residents of states that do not levy state income taxes.

The deduction has been renewed several times, but for a year or two at a time. The latest expiration is the end of 2009.

Besides Nevada, other states that do not have state income taxes are Washington, Alaska, Florida, South Dakota, Tennessee, Texas and Wyoming.

More than 440,000 Nevadans claimed the sales tax deduction in 2006, the most recent year for which the Internal Revenue Service had figures available.