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103D CONGRESS

2D SESSION H. R. 4420

To amend the Internal Revenue Code of 1986 to allow a deduction for

State and local general sales taxes and to compensate for the resulting

revenue loss by providing that only 75 percent of the amount of all

State and local taxes shall be allowed as a deduction.

IN THE HOUSE OF REPRESENTATIVES

MAY 12, 1994

Mr. SMITH of Michigan introduced the following bill; which was referred to

the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to allow a

deduction for State and local general sales taxes and

to compensate for the resulting revenue loss by providing

that only 75 percent of the amount of all State and

local taxes shall be allowed as a deduction.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. RESTORATION OF DEDUCTION FOR STATE AND

2 LOCAL GENERAL SALES TAXES; LIMITATION

3 ON DEDUCTION FOR ALL STATE AND LOCAL

4 TAXES.

5 (a) ALLOWANCE OF DEDUCTION FOR STATE AND

6 LOCAL GENERAL SALES TAXES.—

7 (1) IN GENERAL.—Subsection (a) of section

8 164 of the Internal Revenue Code of 1986 (relating

9 to deduction for taxes) is amended by redesignating

10 paragraphs (4) and (5) as paragraphs (5) and (6),

11 respectively, and by inserting after paragraph (3)

12 the following new paragraph:

13 ‘‘(4) 75 percent of the amount of State and

14 local general sales taxes.’’.

15 (2) DEFINITIONS.—Subsection (b) of section

16 164 of such Code is amended by adding at the end

17 thereof the following new paragraphs:

18 ‘‘(5) DEFINITIONS RELATING TO GENERAL

19 SALES TAXES.—For purposes of subsection (a)(4)—

20 ‘‘(A) IN GENERAL.—The term ‘general

21 sales tax’ means a tax imposed at one rate in

22 respect of the sale at retail of a broad range of

23 classes of items.

24 ‘‘(B) SPECIAL RULES FOR FOOD, ETC.—In

25 the case of items of food, clothing, medical sup26 plies, and motor vehicles—
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1 ‘‘(i) the fact that the tax does not

2 apply in respect of some or all of such

3 items shall not be taken into account in

4 determining whether the tax applies in re5 spect of a broad range of classes of items,

6 and

7 ‘‘(ii) the fact that the rate of tax ap8 plicable in respect of some or all of such

9 items is lower than the general rate of tax

10 shall not be taken into account in deter11 mining whether the tax is imposed at one

12 rate.

13 ‘‘(C) ITEMS TAXED AT DIFFERENT

14 RATES.—Except in the case of a lower rate of

15 tax applicable in respect of an item described in

16 subparagraph (B), no deduction shall be al17 lowed under this section for any general sales

18 tax imposed in respect of an item at a rate

19 other than the general rate of tax.

20 ‘‘(D) COMPENSATING USE TAXES.—A com21 pensating use tax in respect of an item shall be

22 treated as a general sales tax. For purposes of

23 the preceding sentence, the term ‘compensating

24 use tax’ means, in respect of any item, a tax

25 which—
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1 ‘‘(i) is imposed on the use, storage, or

2 consumption of such item, and

3 ‘‘(ii) is complementary to a general

4 sales tax, but only if a deduction is allow5 able under subsection (a)(4) in respect of

6 items sold at retail in the taxing jurisdic7 tion which are similar to such item.

8 ‘‘(E) SPECIAL RULE FOR MOTOR VEHI9 CLES.—In the case of motor vehicles, if the rate

10 of tax exceeds the general rate, such excess

11 shall be disregarded and the general rate shall

12 be treated as the rate of tax.

13 ‘‘(6) SEPARATELY STATED GENERAL SALES

14 TAXES.—If the amount of any general sales tax is

15 separately stated, then, to the extent that the

16 amount so stated is paid by the consumer (otherwise

17 than in connection with the consumer’s trade or

18 business) to his seller, such amount shall be treated

19 as a tax imposed on, and paid by, such consumer.’’.

20 (b) LIMITATION ON DEDUCTIONS.—Paragraphs (1),

21 (2), and (3) of section 164(a) of such Code are each

22 amended by inserting ‘‘75 percent of the amount of’’ be23 fore ‘‘State and local’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 the date of the enactment of this Act.

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