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Sales tax deduction comes too late for IRS forms

WASHINGTON—As Congress finished its session this past weekend, lawmakers managed to restore a federal tax break dear to residents of states without income taxes—such as Texas, Florida, Washington and Alaska—in time for 2006 tax returns but not, it turns out, in time for the IRS.

The tax agency already went to press for all the tax forms it mails to taxpayers—without the line for deducting state and local sales taxes. New tax returns, mailings and Web forms are in the works.

"Come January, folks will start receiving their all-important W-2 forms, and tax time will be in the news," said Rep. Sam Johnson, R-Texas. "It's critical that people know that the state sales tax deduction is available for them in 2006."

The tax break, which allows taxpayers who itemize to choose between deducting state and local sales taxes and state income taxes, was in effect in 2004 and 2005, after a nearly 20-year hiatus. But the deduction expired in 2005, and lawmakers from the states without income taxes pushed to make it part of the package of popular tax "extenders" that Congress passed for two years, 2006 and 2007.

The deduction will be restored when the president signs the Tax Relief and Health Care Act of 2006, which he's expected to do shortly.

The Internal Revenue Service is planning to print new forms, update publications on its Web site,, and prepare special mailings.

"We're going to work hard to put this in place," said IRS spokesman Terry Lemons, who said the forms without the deduction line had an early November printing deadline. "We are making plans for a special mailing specifically on the sales tax issue."

Six million people who file by paper and who didn't use tax preparers will be getting additional 1040 tax form packets. They'll include IRS tables listing estimated sales taxes for families and individuals for the seven states that don't have income taxes.

"We're going to do everything we can to minimize the impact on the taxpayer," Lemons said.

While a majority of taxpayers now file electronically—where the tax deduction information is easily updated—lawmakers don't want to miss any residents who could use the deduction.


(c) 2006, McClatchy-Tribune Information Services.

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