Action on sales tax deduction put off until ’08

WASHINGTON -- Congress is punting into next year the renewal of a sales tax deduction claimed by thousands of Nevadans and residents of a handful of other states on their federal tax returns.

Nevada taxpayers took more than $547 million in deductions in 2005 by writing off portions of the sales tax paid on their purchases, according to the Internal Revenue Service.

But Congress is expected to adjourn by the end of the week without renewing the tax benefit, lawmakers said. It technically expires at the end of the year, although lawmakers said it probably would be taken up next year and made retroactive to ensure continuity.

About three dozen other tax provisions set to expire include deductions and credits for business research and development, low income employment opportunities, college tuition and low-income housing.

"It is unlikely the tax break extensions will be finalized this week," said Rep. Dean Heller, R-Nev. "I am optimistic these extensions can be passed retroactively in the new year."

Heller's assessment was echoed by other Nevadans on Capitol Hill who said renewal of the popular sales tax break would be among their priorities in 2008.

Despite the assurances, the failure of Congress to act now will cause consumers some uncertainty, said Carole Vilardo, Nevada Taxpayers Association president.

"I think it could influence the spending of someone looking to make a major purchase such as an auto, where they would make that deduction," Vilardo said.

"It is a very unfortunate situation and, given the state of the economy, it is even more unfortunate," she said. "Congress is not creating predictability."

A one-year extension of the tax provisions nearly passed Congress earlier this fall as part of a larger tax package, but they ultimately were stripped after lawmakers reached an impasse over how to pay for the overall tax bill. The suite of "tax extenders" was to cost about $21 billion.

Rep. Jon Porter, R-Nev., said partisan politics were to blame. "These are tax provisions that Nevada families depend on," he said. "I am disappointed that the Democrats will not consider (an extension) until next year."

Democrats pointed to opposition from Republicans and the White House after they proposed a "pay as you go" strategy that would have offset the cost of the tax bill by raising other taxes.

Senate Majority Leader Harry Reid, D-Nev., planned to "do everything he can to pass" the tax extender bill next year, a spokesman said.

Rep. Shelley Berkley, D-Nev., emphasized that the deduction will be available when Nevadans file their taxes next April. She said the problem of continually needing to renew the tax break could be solved simply by making it permanent "so that families are not left guessing." Congress has shown little interest in that idea so far.

The sales tax deduction, once a staple of the tax code, was repealed in 1986 but revived in 2004. The law allows all taxpayers to choose whether to deduct state income taxes or state sales taxes. For people in Nevada, Tennessee, Alaska, Texas, Washington, Florida, Wyoming and South Dakota -- all states without a broad-based income tax -- the choice is easy.