WASHINGTON — Congress took another step Tuesday to renew the federal deduction for state and local sales taxes, a benefit targeted to Nevadans and residents of a half-dozen other states.
The Senate Finance Committee included the sales tax break in a bill it approved that would extend more than 50 tax provisions that expired at the end of last year. They would be renewed until the end of 2016.
Another of the bill‘s tax breaks prized in Nevada aims at underwater homeowners who are forgiven part of their mortgages or complete a short sale of their property. It would prohibit the IRS from labeling that windfall as income and taxing it.
Many of the so-called "tax extenders" that are being considered for renewal are targeted to specific audiences and need to be replenished every year or two. Congress often waits until the last minute, and has even renewed them retroactively.
Current law gives taxpayers the choice on their federal return to deduct either the state income tax they pay or their sales taxes. The sales tax break is widely used by residents of Nevada, Wyoming, South Dakota, Washington, Texas, Florida and Tennessee — all states that do not levy an income tax.
The House in April voted for a bill that would make the sales tax deduction a permanent part of the tax code. In the Senate committee on Tuesday, Sen. Dean Heller, R-Nev., proposed an amendment that would do the same "as a matter of fairness" to the states.
But Sen. Orrin Hatch, R-Utah, the committee chairman, discouraged Heller and other senators who had prepared amendments to make tax breaks permanent.
Hatch said he wanted to move quickly to renew the tax breaks at least temporarily and agreed to hold debate later on which ones to cement into the code. Some lawmakers hold out hope that Congress can write a more comprehensive tax reform bill.
Heller withdrew his amendment but said afterward that he expects more debate over the sales tax deduction.
"We are going to go to a more permanent bill by the end of the year," he said. "We‘ll be pushing this again. There will be a lot of options available."