Congressional Wrangling Leaves Sales Tax Deduction in Question

The budget debate on Capitol Hill this week is primarily about the payroll tax, but residents of seven states without an individual income tax Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming have an extra incentive to see how it turns out.

For years, residents of those states have been able to deduct state sales taxes from their federal returns in place of the state income tax deductions that residents elsewhere enjoy (Alaska and New Hampshire have neither sales nor income taxes). But as The Seattle Times reports , it's not clear yet whether the sales tax deduction will be part of any budget deal that emerges from Congress.

"The latest deal on a payroll-tax holiday, hammered out this week by a House-Senate conference committee, apparently does not include an agreement to extend sales-tax deductions and a host of other tax breaks," the paper reports."That leaves unsettled whether ... Washington residents will be able to write off taxes on purchases made this year."

This isn't the first time that Congress has left the deduction in limbo. The credit haslurched from one temporary renewal to another," The Times notes, with lawmakers letting it expire in 2009 only to retroactively renew it a year later, through 2011.

The 2011 tax returns, in other words, still allow the sales-tax deduction. What remains to be seen is whether returns for 2012, to be filed early next year, will allow it. In the meantime, some residents of Washington State are unhappy with the uncertainty. "It's so confusing," one Seattle resident tells The Times.It's no way to run a government.

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