Deadline looms for Texas losing sales tax deduction

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by BRAD WATSON

WFAA

Posted on December 13, 2012 at 8:32 PM

DALLAS -- Texas taxpayers may not see this one coming.

With all the focus on the upcoming fiscal cliff and the fight over higher taxes for the wealthy, a deduction that could cost the Texans filing more than two million returns.

Forty-two states have an income tax, and people in those states can use it as a permanent deduction from their federal taxes. Of course, Texas doesn't have an income tax, but instead state and local sales taxes. And through 2011, a lot of Texas taxpayers took a deduction for sales taxes.

But Congress has not extended the sales tax deduction for this year, and time is running out.

The shoppers racking up sales are spending more this year with the economy improved. For Texans who itemize on their federal tax returns there's some comfort when they know they can deduct their state and local sales taxes.

"I think it's very important that we have the sales tax deduction, because any time you can get a deduction with anything that you pay, you know, it's going to be great," said Jannine Smith, while shopping at a Dallas Target store.

The IRS said in 2010, the latest year for tax data, almost 2.3 million returns in Texas - about 20 percent - filed for the deduction. It's sought across all income levels, especially the middle class, with the average tax saving us $500.

But the deduction isn't permanent, like Congress made state income taxes in 1986.

After fighting many years, in 2004 Senator Kay Bailey Hutchison got Congress to allow Texans to deduct their sales taxes.

"All I've ever asked is for parity," she said. "If you are going to give income taxes paid at the state level an exemption, you should give sales taxes as well and give people the choice."

Congress just granted two year extensions though.

Hutchison says she's optimistic she can win another extension in the next few weeks for 2012, but there's no deal yet.

And Smith fears it could get lost in the fiscal cliff debate.

"It could, but I sure hope that it doesn't," she said.

E-mail bwatson@wfaa.com

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