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106TH CONGRESS

1ST SESSION S. 1490

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

State and local sales taxes in lieu of State and local income taxes.

IN THE SENATE OF THE UNITED STATES

AUGUST 4, 1999

Mr. THOMPSON (for himself and Mr. FRIST) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to allow a

deduction for State and local sales taxes in lieu of State

and local income taxes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Tax Deduction Fair5 ness Act of 1999’’.

6 SEC. 2. DEDUCTION OF STATE AND LOCAL GENERAL SALES

7 TAXES IN LIEU OF STATE AND LOCAL IN8 COME TAXES.

9 (a) IN GENERAL.—Subsection (b) of section 164 of

10 the Internal Revenue Code of 1986 (relating to definitions
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1 and special rules) is amended by adding at the end thereof

2 the following new paragraph:

3 ‘‘(5) GENERAL SALES TAXES.—For purposes of

4 subsection (a)—

5 ‘‘(A) ELECTION TO DEDUCT STATE AND

6 LOCAL SALES TAXES IN LIEU OF STATE AND

7 LOCAL INCOME TAXES.—

8 ‘‘(i) IN GENERAL.—At the election of

9 the taxpayer for the taxable year, sub10 section (a) shall be applied—

11 ‘‘(I) without regard to the ref12 erence to State and local income

13 taxes,

14 ‘‘(II) as if State and local general

15 sales taxes were referred to in a para16 graph thereof, and

17 ‘‘(III) without regard to the last

18 sentence.

19 ‘‘(B) DEFINITION OF GENERAL SALES

20 TAX.—The term ‘general sales tax’ means a tax

21 imposed at one rate in respect of the sale at re22 tail of a broad range of classes of items.

23 ‘‘(C) SPECIAL RULES FOR FOOD, ETC.—In

24 the case of items of food, clothing, medical sup25 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 ‘‘(D) 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 (C), no deduction shall be allowed

17 under this paragraph for any general sales tax

18 imposed in respect of an item at a rate other

19 than the general rate of tax.

20 ‘‘(E) 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 this paragraph in respect of

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

8 ‘‘(F) 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 ‘‘(G) SEPARATELY STATED GENERAL

14 SALES TAXES.—If the amount of any general

15 sales tax is separately stated, then, to the ex16 tent that the amount so stated is paid by the

17 consumer (otherwise than in connection with

18 the consumer’s trade or business) to his seller,

19 such amount shall be treated as a tax imposed

20 on, and paid by, such consumer.

21 ‘‘(H) AMOUNT OF DEDUCTION TO BE DE22 TERMINED UNDER TABLES.—

23 ‘‘(i) IN GENERAL.—The amount of

24 the deduction allowed by this paragraph
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1 shall be determined under tables prescribed

2 by the Secretary.

3 ‘‘(ii) REQUIREMENTS FOR TABLES.—

4 The tables prescribed under clause (i) shall

5 reflect the provisions of this paragraph and

6 shall be based on the average consumption

7 by taxpayers on a State-by-State basis, as

8 determined by the Secretary, taking into

9 account filing status, number of depend10 ents, adjusted gross income, and rates of

11 State and local general sales taxation.’’.

12 (b) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to taxable years beginning after

14 the date of the enactment of this Act.

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