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House restores policy for residents of states without income taxes

WASHINGTON—The House of Representatives restored a popular tax break Friday that's crucial to residents of Texas, Florida, Washington state, Alaska and four other states that don't have state income taxes. The move will allow taxpayers to deduct the state and local sales taxes they pay from their federal income taxes.

The deduction expired at the end of last year. The House-passed bill extends it for tax years 2006 and 2007.

The provision is part of a popular tax package that has strong Senate support. But after a dispute over procedure, it was unclear Friday night when the Senate would proceed with the legislation.

"In Texas, deducting the sale tax saves our Texas families $1 billion a year," said Rep. Kevin Brady, R-Texas, a member of the House Ways and Means Committee. "Being able to deduct that sales tax is a real help to families, especially people just starting out."

Being able to deduct sales taxes on federal income-tax returns saves a typical Texas family of four that itemizes about $310 a year, according to the Texas comptroller's office.

"Last year alone, Washingtonians used the state sales-tax deduction to save hundreds of millions of dollars," said Rep. Brian Baird, D-Wash., "money that then went toward college tuition, home improvement projects and to help the local economy thrive."

"I'm on cloud nine," Baird said when the bill passed the House. The average family of four in Washington that used the sales-tax deduction got back about $500, for a return to the state of $350 million a year, Baird said.

The tax break was reinserted in the tax code in 2004 for two years by then-House Majority Leader Tom DeLay, R-Texas, after being removed in 1986.

This year's delay in determining whether the provision would apply in 2006 has affected purchasing decisions.

"People were telling me they weren't sure when they should buy a car," Baird said.

The provision permits all taxpayers who itemize the choice of deducting either state income taxes or sales taxes. Seven states don't have state income taxes, and Alaska has neither a state sales tax nor an income tax but has local sales taxes that can be deducted.

Taxpayers may use IRS tax tables to estimate the amount of sales taxes they paid or may retain sales receipts.

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STATES THAT HAVE NO INCOME TAXES:

Alaska

Florida

Nevada

South Dakota

Tennessee

Texas

Washington

Wyoming

Note: Tennessee has an income tax that's limited to dividends and interest income.

Source: Federation of Tax Administrators

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(c) 2006, McClatchy-Tribune Information Services.

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