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Rabb Delay would cause ‘hardship, tax compliance problems and confusion'

by Harry Rabb, C.P.A.

Special to Tropical Breeze

Several news agencies are reporting that Congress is rapidly running out of time to extend a tax break that has saved more than 8.6 million taxpayers in eight states, including Florida, billions of dollars on their federal returns.

The Internal Revenue Service needs to submit this year’s tax forms to the printers by Oct. 15. Congress is set to adjourn by the first of October and, at the moment, there isn’t even a bill moving forward that would again allow the residents of the eight states to deduct what they pay in state and local sales taxes on their federal returns.

The tax break expired at the beginning of 2006. If Congress does act to extend the sales tax deduction, it would be retroactive to cover the entire year.

After checking with the IRS, Sen. Chuck Grassley, R-Iowa, chairman of the finance committee, said in a memo that a legislative delay would cause “hardship, tax compliance problems and confusion” for millions of taxpayers.

But even as Grassley and others sought to ratchet up the pressure, Senate Republican leaders twice in September rebuffed Democratic efforts to bring to a vote a measure that would extend the sales tax deduction, along with a deduction for college tuition and a research-and-development tax credit for business.  

Senate Majority Leader Bill Frist, R-Tenn., continues to insist publicly that the sales tax deduction and other so-called tax extenders will remain part of a massive money package that would cut the estate tax and raise the minimum wage. The measure also includes a $900 million tax break for Washington state-based Weyerhaeuser and other large timber companies.

Republicans hoped that by including the sales tax deduction and timber tax break they could pick up support from Washington’s two senators. But just before the August recess, the tax bill was defeated, with both voting against it.

The deal breaker for the two Washington senators was a provision that could have cost more than 100,000 waiters, waitresses and other tip-earners millions of dollars in earnings.

While Frist is reportedly negotiating with other senators about whether to let a separate tax-extenders bill come to the floor before adjournment, the legislative agenda is already crowded with issues ranging from immigration to how the U.S. will treat prisoners in the war on terror.

In the House of Representatives, Rep. Bill Thomas, R-Calif., chairman of the tax-writing Ways and Means Committee, has said he won’t be “stampeded by IRS bureaucrats” and the Oct. 15 deadline and that he still hoped to move an estate-tax package that would include the tax-extenders.

Rep. Brian Baird, D-Wash., who’s been working on the sales tax deduction since he was first elected in 1998, said he, too, thought the IRS could “deal with” congressional renewal of the sales tax deduction even if it came after Oct. 15. Congress may return after the November election.

For years, residents of the eight states that have only a sales tax were able to deduct their state and local sales taxes from their federal tax bills. But when Congress simplified the tax code in 1986, it dropped the sales tax deduction. Residents of states that have an income tax were allowed to continue deducting it on their federal returns.

Congress reinstated the sales tax deduction in 2004, but for only two years.

For Floridians, time could be running out on this significant deduction.

This information is provided as a public service and should not be construed as individual accounting or tax planning advice. For information on how these general principles apply to your situation, please consult an accounting or tax professional.

Harry Rabb is a C.P.A. and owner of Accounting Services, Inc., 935 Main Street, Suite D-1, Safety Harbor. Call 727-725-4121.