House Panel Passes Bill On State and Local Sales Tax Deduction

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WASHINGTON - The House Ways and Means Committee on Thursday approved a bill to make the state and local sales tax deduction permanent.

The bill, H.R. 622, was supported by Republicans on the committee but opposed by Democrats. It was one of three bills the committee approved, along with legislation that made technical changes to 529 college savings plans and legislation that would make the research credit permanent.

The state and local sales tax deduction is taken in lieu of the state and local income tax deduction. It is a temporary tax provision known as a "tax extender" and it expired at the end of 2014.

During the vote on the legislation to make the sales tax deduction permanent, Rep. Kevin Brady, R-Texas, who sponsored the bill, said it would provide certainty to taxpayers. He also said that the dollars that stay in local communities due to the deduction "help grow their economy rather than Washington's economy."

Rep. Sam Johnson, R-Texas, said the bill is important because taxpayers in states without income taxes, such as Texas, are currently at a disadvantage compared to taxpayers in states with income taxes. The state and local income tax deduction is permanent.

Democrats on the committee opposed the bill in part because there was no offset in it for making the sales tax deduction permanent. The Joint Committee on Taxation estimated that if enacted, the bill would cost $42.4 billion from fiscal 2015 to fiscal 2025.

Rep. Xavier Becerra, D-Calif., said making the deduction permanent would disproportionately benefit people that are on the top end of the income spectrum.

The top Democrat on the Ways and Means Committee, Rep. Sandy Levin of Michigan, said that while members of his party favor the deduction, there is "danger" in handling tax provisions individually rather through tax reform. He noted that Sen. Roy Blunt, R-Mo., said last week that the Senate is unlikely to act quickly on bills making extenders permanent while the Senate Finance Committee thinks there is an opportunity for tax reform.

The committee's chairman, Rep. Paul Ryan., R-Wis., said that making tax extenders permanent "gets them out of the way so that we can go focus on tax reform."

A similar bill was introduced last month in the Senate by Sen. Dean Heller, R-Nev. It is cosponsored by Democratic and Republican Senators from states without income taxes.

The Ways and Means Committee also approved a bill to make changes to 529 plans, which states set up under Section 529 of the Internal Revenue Code to allow parents or others to invest money that can be used to pay the higher education expenses of beneficiaries. Some 529 program disclosure documents must be disclosed on the Municipal Securities Rulemaking Board's EMMA system.

The bill, H.R. 529, would allow distributions from savings plans used for computer technology or equipment, Internet access and related services to receive favorable tax treatment. It also would provide that if a beneficiary receives a refund of higher education expenses from a college or university, a distribution from a savings plan used to pay the refunded expenses will not be taxed if the beneficiary recontributes the refunded amount back to the savings plan within 60 days of receiving it.

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