In the past, residents of Texas and all other states were able to deduct any state sales tax paid throughout the year on their state income tax. While taking the deduction does involve a bit of paperwork — you have to keep all your sales receipts for an entire year — the benefit is often worth it for individuals who live in states without an income tax.
The sales tax deduction expired at the end of 2014, however, and residents in those no income tax states called foul. The sales tax is often higher in those states than in others to make up for the lack of income tax, and individuals in other states are still able to deduct their state income tax payments on federal returns.
Although a new tax law change to extend the sales tax break hasn’t made its way to the federal books yet, Texas residents should keep an eye on federal legislators. So far, the House of Representatives has voted not only to extend the sales tax deduction, but to make it a permanent part of the federal tax law. While that’s a win for tax payers across the nation — and especially those in states such as Texas — the change hasn’t been made quite yet.
Political pundits believe the President is likely to veto such a sweeping proposition. Detractors of the proposed bill point to the nature of the change and the need for overall reform. Many lawmakers on the other side of the issue would rather see a temporary extension of the deduction.
Whichever way the bill falls, residents should note the change for 2015 tax returns. If you are used to claiming the sales tax deduction, understand that it may not be available for next year’s return.
Source: Bloomberg, “Texas, Florida Win as House Passes State Sales Tax Break,” Richard Rubin, April. 16, 2015