[Congressional Record Volume 149, Number 32 (Thursday, February 27, 2003)]
[Senate]
[Pages S2924-S2925]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. HUTCHISON (for herself, Ms. Cantwell, Mr. Frist, Mr. 
        Cornyn, Mr. Cochran, Mr. Thomas, and Mr. Alexander):
  S. 467. 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 and to allow the State and local income tax deduction 
against the alternative minimum tax; to the Committee on Finance.
  Mrs. HUTCHISON. Mr. President, I am pleased to introduce a bill to 
correct an injustice in the tax code that harms citizens in every state 
of this great Nation.
  State and local governments have various alternatives for raising 
revenue. Some levy income taxes, some use sales taxes, and others use a 
combination of the two. The citizens who pay State and local income 
taxes are able to offset some of what they pay by receiving a deduction 
on their Federal taxes. Before 1986, taxpayers also had the ability to 
deduct their sales taxes.
  The philosophy behind these deductions is simple: people should not 
have to pay taxes on their taxes. The money that people must give to 
one level of government should not also be taxed by another level of 
government.
  Unfortunately, these common sense deductions have slowly been eroded 
over the years. First, the deduction for State and local sales tax was 
eliminated in the 1986 tax reform legislation. Second, the alternative 
minimum tax has reduced the benefit of the income tax deduction for 
many.
  The elimination of the sales tax deduction discriminates against 
those living in states, such as my home State of Texas, with no income 
taxes. It is important to remember the lack of an income tax does not 
mean citizens in these States do not pay State taxes; revenues are 
simply collected differently.
  It is unfair to give citizens from some States a deduction for the 
revenue they provide their State and local governments, while not doing 
the same for citizens from other States. Federal tax law should not 
treat people differently on the basis of State residence and differing 
tax collection methods.
  This discrepancy has a significant impact on Texas. According to the 
Texas Comptroller, if taxpayers could deduct their sales taxes, more 
than $700 million would stay in the hands of Texans. This could lead to 
the creation of more than 16,000 new jobs and add almost $900 million 
in economic activity. The impact of this growth would be particularly 
beneficial during this period when many States are facing record-
breaking deficits. At the same time, such a tax change would cost the 
Federal Government less than one percent of what the current State and 
local income tax deduction costs.
  For those in states with income taxes, their tax deduction benefit 
has been diminished by the alternative minimum tax, AMT. People can 
deduct their state and local income taxes when calculating their 
regular taxes, but not when determining the AMT. The difference often 
is the reason people must pay the higher alternative tax.
  In fact, state and local taxes account for 54 percent of the 
difference between the AMT and the regular tax calculation. This 
particularly hurts the 60 percent of AMT payers who are from states 
with higher income tax rates. Eliminating this discrepancy would go a 
long way toward reducing the number of people affected by the AMT.
  The legislation I am offering today will fix these problems. First, 
it will provide all taxpayers with the option of deducting State and 
local sales taxes, instead of income taxes, when calculating their 
Federal tax. This will end the discrimination suffered by my fellow 
Texans and citizens of other states who do not have the option of an 
income tax deduction. It will also allow people from states with both a 
sales and an income tax to choose the most advantageous deduction.
  My bill will also provide for a State and local income and sales tax 
deduction in the AMT. This is an important step in reducing the 
ballooning growth of the AMT, which will impact almost a third of all 
taxpayers by 2010.
  The legislation I am introducing today is about reestablishing equity 
to the tax code and defending the important principle of eliminating 
taxes on taxes. I hope my fellow Senators will support this effort.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:


[[Page S2925]]



                                 S. 467

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``State Sales and Income Tax 
     Deduction Fairness Act of 2003''.

     SEC. 2. DEDUCTION OF STATE AND LOCAL GENERAL SALES TAXES IN 
                   LIEU OF STATE AND LOCAL INCOME TAXES.

       (a) In General.--Subsection (b) of section 164 of the 
     Internal Revenue Code of 1986 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new paragraph:
       ``(5) General sales taxes.--For purposes of subsection 
     (a)--
       ``(A) Election to deduct state and local sales taxes in 
     lieu of state and local income taxes.--
       ``(i) In general.--At the election of the taxpayer for the 
     taxable year, subsection (a) shall be applied--

       ``(I) without regard to the reference to State and local 
     income taxes,
       ``(II) as if State and local general sales taxes were 
     referred to in a paragraph thereof, and
       ``(III) without regard to the last sentence.

       ``(B) Definition of general sales tax.--The term `general 
     sales tax' means a tax imposed at one rate with respect to 
     the sale at retail of a broad range of classes of items.
       ``(C) Special rules for food, etc.--In the case of items of 
     food, clothing, medical supplies, and motor vehicles--
       ``(i) the fact that the tax does not apply with respect to 
     some or all of such items shall not be taken into account in 
     determining whether the tax applies with respect to a broad 
     range of classes of items, and
       ``(ii) the fact that the rate of tax applicable with 
     respect to some or all of such items is lower than the 
     general rate of tax shall not be taken into account in 
     determining whether the tax is imposed at one rate.
       ``(D) Items taxed at different rates.--Except in the case 
     of a lower rate of tax applicable with respect to an item 
     described in subparagraph (C), no deduction shall be allowed 
     under this paragraph for any general sales tax imposed with 
     respect to an item at a rate other than the general rate of 
     tax.
       ``(E) Compensating use taxes.--A compensating use tax with 
     respect to an item shall be treated as a general sales tax. 
     For purposes of the preceding sentence, the term 
     `compensating use tax' means, with respect to any item, a tax 
     which--
       ``(i) is imposed on the use, storage, or consumption of 
     such item, and
       ``(ii) is complementary to a general sales tax, but only if 
     a deduction is allowable under this paragraph with respect to 
     items sold at retail in the taxing jurisdiction which are 
     similar to such item.
       ``(F) Special rule for motor vehicles.--In the case of 
     motor vehicles, if the rate of tax exceeds the general rate, 
     such excess shall be disregarded and the general rate shall 
     be treated as the rate of tax.
       ``(G) Separately stated general sales taxes.--If the amount 
     of any general sales tax is separately stated, then, to the 
     extent that the amount so stated is paid by the consumer 
     (other than in connection with the consumer's trade or 
     business) to the seller, such amount shall be treated as a 
     tax imposed on, and paid by, such consumer.
       ``(H) Amount of deduction to be determined under tables.--
       ``(i) In general.--The amount of the deduction allowed 
     under this paragraph shall be determined under tables 
     prescribed by the Secretary.
       ``(ii) Requirements for tables.--The tables prescribed 
     under clause (i) shall reflect the provisions of this 
     paragraph and shall be based on the average consumption by 
     taxpayers on a State-by-State basis, as determined by the 
     Secretary, taking into account filing status, number of 
     dependents, adjusted gross income, and rates of State and 
     local general sales taxation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 3. ALLOWANCE OF STATE AND LOCAL INCOME TAXES AGAINST 
                   ALTERNATIVE MINIMUM TAX.

       (a) In General.--Section 56(b)(1)(A)(ii) of the Internal 
     Revenue Code of 1986 (relating to limitation on deductions) 
     is amended by inserting ``(other than State and local income 
     taxes or general sales taxes)'' before the period.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______