| The Deduction for State and Local Tax |
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December 17, 2004
The November 4, 2004 article below discusses the new deduction for state and local sales taxes. The law providing for the new deduction states that in addition to the amounts provided in the IRS tables, taxpayers may also deduct the sales taxes paid on motor vehicles, boats, and “other items specified by the IRS.”
The IRS has spoken today in Publication 600. The only other items specified by the IRS are an aircraft, a home or home building materials. You cannot add to the tables the sales taxes paid for new home appliances, electronic systems or other big ticket items—for those you must account for all of the sales taxes paid during the year.
Is Publication 600 the final word on the matter? The answer is “no!” Congress clearly gave the IRS the power to define what those other items are. The response to the delegation of such authority is always the issuance of Income Tax Regulations by the Treasury Department. The promulgation of Income Tax Regulations is a public process with the opportunity for public input and comment. Regulations may come, but not in time for the preparation of 2004 income tax returns.
Should a taxpayer claim the sales tax on other big ticket items not specified in Publication 600 while still using the tables? While the taxpayer may eventually win, based upon the methodology that existed before the repeal of the sales tax deduction almost twenty years ago, one should consider the tax saving from such a strategy compared with the cost of defending the position. While there is much satisfaction in being the martyr who is “right,” the price of martyrdom is always the same.