[House Report 114-51]
[From the U.S. Government Publishing Office]


114th Congress    }                                     {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                     {        114-51

======================================================================



 
        STATE AND LOCAL SALES TAX DEDUCTION FAIRNESS ACT OF 2015

                                _______
                                

 April  6, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 622]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 622) to amend the Internal Revenue Code of 1986 to 
make permanent the deduction of State and local general sales 
taxes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     2
          C. Legislative History.................................     3
 II. EXPLANATION OF THE BILL..........................................3
          A. Deduction for State and local sales taxes (sec. 2 of 
              the bill and sec. 164 of the Code).................     3
III. VOTES OF THE COMMITTEE...........................................4
 IV. BUDGET EFFECTS OF THE BILL.......................................5
          A. Committee Estimate of Budgetary Effects.............     5
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     7
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     7
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......10
          A. Committee Oversight Findings and Recommendations....    10
          B. Statement of General Performance Goals and 
              Objectives.........................................    10
          C. Information Relating to Unfunded Mandates...........    10
          D. Applicability of House Rule XXI 5(b)................    10
          E. Tax Complexity Analysis.............................    10
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    11
          G. Duplication of Federal Programs.....................    11
          H. Disclosure of Directed Rule Makings.................    11
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........11
          A. Text of Existing Law Amended or Repealed by the 
              Bill, as Reported..................................    11
          B. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    15
VII. DISSENTING VIEWS................................................20

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``State and Local Sales Tax Deduction 
Fairness Act of 2015''.

SEC. 2. PERMANENT EXTENSION OF DEDUCTION OF STATE AND LOCAL GENERAL 
                    SALES TAXES.

  (a) In General.--Section 164(b)(5) of the Internal Revenue Code of 
1986 is amended by striking subparagraph (I).
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2014.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 622, reported by the Committee on Ways and Means, 
provides a permanent itemized deduction for State and local 
government sales taxes in lieu of the itemized deduction for 
State and local income taxes. A temporary deduction for sales 
taxes paid to State and local governments expired for tax years 
beginning after December 31, 2014.

                 B. Background and Need for Legislation

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth and job creation, the Committee also believes 
that it is important to provide individuals and small 
businesses with certainty concerning tax provisions like the 
itemized deduction for State and local sales taxes. In the 
context of comprehensive tax reform that simplifies the tax 
code and lowers rates for all taxpayers, policymakers might 
consider repealing or reducing the deduction for all types of 
State and local taxes in return for lower rates. Outside of tax 
reform, however, allowing an itemized deduction for State and 
local income taxes, but not for State and local sales taxes, 
discriminates against residents of States that impose a sales 
tax rather than an income tax. The itemized deduction for sales 
taxes in lieu of the deduction for income taxes has been a 
temporary provision of the tax code since 2004, having now been 
extended for an entire ten-year budget window. Instead of 
repeatedly extending this provision on a temporary basis, the 
Committee believes the itemized deduction for State and local 
sales taxes should be made permanent to provide taxpayers much-
needed certainty in the tax code while Congress works to enact 
comprehensive tax reform.

                         C. Legislative History


Background

    H.R. 622 was introduced on January 30, 2015, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 622, the 
``State and Local Sales Tax Deduction Fairness Act of 2015'' on 
February 12, 2015, and ordered the bill, as amended, favorably 
reported (with a quorum being present).

Committee hearings

    The need for permanent rules regarding State and local 
sales taxes was discussed at two hearings during the 112th and 
113th Congresses:
           Select Revenue Measures Subcommittee Hearing 
        on Certain Expiring Tax Provisions (April 26, 2012); 
        and
           Full Committee Hearing on the Benefits of 
        Permanent Tax Policy for America's Job Creators (April 
        8, 2014).

                      II. EXPLANATION OF THE BILL


 A. Deduction for State and Local Sales Taxes (sec. 2 of the bill and 
                         sec. 164 of the Code)


                              PRESENT LAW

    For purposes of determining regular tax liability, an 
itemized deduction is permitted for certain State and local 
taxes paid, including individual income taxes, real property 
taxes, and personal property taxes. The itemized deduction is 
not permitted for purposes of determining a taxpayer's 
alternative minimum taxable income. For taxable years beginning 
before 2015, at the election of the taxpayer, an itemized 
deduction may be taken for State and local general sales taxes 
in lieu of the itemized deduction provided under present law 
for State and local income taxes. As is the case for State and 
local income taxes, the itemized deduction for State and local 
general sales taxes is not permitted for purposes of 
determining a taxpayer's alternative minimum taxable income. 
Taxpayers have two options with respect to the determination of 
the sales tax deduction amount. Taxpayers may deduct the total 
amount of general State and local sales taxes paid by 
accumulating receipts showing general sales taxes paid. 
Alternatively, taxpayers may use tables created by the 
Secretary of the Treasury (``Secretary'') that show the 
allowable deduction. The tables are based on average 
consumption by taxpayers on a State-by-State basis taking into 
account number of dependents, modified adjusted gross income 
and rates of State and local general sales taxation. Taxpayers 
who live in more than one jurisdiction during the tax year are 
required to pro-rate the table amounts based on the time they 
live in each jurisdiction. Taxpayers who use the tables created 
by the Secretary may, in addition to the table amounts, deduct 
eligible general sales taxes paid with respect to the purchase 
of motor vehicles, boats, and other items specified by the 
Secretary. Sales taxes for items that may be added to the 
tables are not reflected in the tables themselves.
    A general sales tax is a tax imposed at one rate with 
respect to the sale at retail of a broad range of classes of 
items.\1\ No deduction is allowed for any general sales tax 
imposed with respect to an item at a rate other than the 
general rate of tax. However, in the case of food, clothing, 
medical supplies, and motor vehicles, the above rules are 
relaxed in two ways. First, if the tax does not apply with 
respect to some or all of such items, a tax that applies to 
other such items can still be considered a general sales tax. 
Second, the rate of tax applicable with respect to some or all 
of these items may be lower than the general rate. However, in 
the case of motor vehicles, if the rate of tax exceeds the 
general rate, such excess is disregarded and the general rate 
is treated as the rate of tax.
---------------------------------------------------------------------------
    \1\Sec. 164(b)(5)(B).
---------------------------------------------------------------------------
    A compensating use tax with respect to an item is treated 
as a general sales tax, provided such tax is complementary to a 
general sales tax and a deduction for sales taxes is allowable 
with respect to items sold at retail in the taxing jurisdiction 
that are similar to such item.

                           REASONS FOR CHANGE

    The Committee believes that parity should exist between 
taxpayers who live in States and localities that choose to fund 
their operations through the use of income taxes, and those who 
live in States and localities that choose to fund their 
operations through the use of a sales tax.

                        EXPLANATION OF PROVISION

    The provision extends permanently the provision allowing 
taxpayers to elect to deduct State and local sales taxes in 
lieu of State and local income taxes.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2014.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 622, the ``State and Local Sales Tax 
Deduction Fairness Act of 2015'' on February 12, 2015.
    The bill, H.R. 622, was ordered favorably reported to the 
House of Representatives as amended by a roll call vote of 22 
yeas to 14 nays (with a quorum being present). The vote was as 
follows:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 622, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal budget receipts for fiscal years 2015-2025:

                                                                      FISCAL YEARS
                                                                  [Millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
       2015            2016       2017       2018       2019       2020       2021       2022       2023       2024       2025      2015-20     2015-25
--------------------------------------------------------------------------------------------------------------------------------------------------------
-148                  -3,332     -3,462     -3,656     -3,872     -4,074     -4,298     -4,539     -4,772     -5,021     -5,267     -18,543     -42,440
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

    Pursuant to clause 8 of rule XIII of the Rules of the House 
of Representatives, the following statement is made by the 
Joint Committee on Taxation with respect to the provisions of 
the bill amending the Internal Revenue Code of 1986: the gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ''major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 19, 2015.
Hon. Paul Ryan,
Chairman, Committee on Ways and Means, House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 622, the State and 
Local Sales Tax Deduction Fairness Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                         Robert A. Sunshine
                                        (For Douglas W. Elmendorf).
    Enclosure.

H.R. 622--State and Local Sales Tax Deduction Fairness Act of 2015

    H.R. 622 would amend the Internal Revenue Code to 
permanently extend the provision allowing taxpayers who itemize 
their tax deductions to elect to deduct state and local sales 
taxes in lieu of state and local income taxes. That provision 
expired at the end of tax year 2014.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 622 would reduce revenues, thus 
increasing federal deficits, by about $42 billion over the 
2015-2025 period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Enacting H.R. 622 would result in 
revenue losses in each year beginning in 2015. The estimated 
increases in the deficit are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

                              CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 622, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON FEBRUARY 12, 2015
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             By fiscal year, in millions of dollars--
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                     2015        2016        2017        2018        2019        2020        2021        2022        2023        2024        2025       2015-2020     2015-2025
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go Impact..        148       3,332       3,462       3,656       3,872       4,074       4,298       4,539       4,772       5,021       5,267        18,543        42,440
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 622 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Treasury Department) to provide a tax 
complexity analysis. The complexity analysis is required for 
all legislation reported by the Senate Committee on Finance, 
the House Committee on Ways and Means, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Internal Revenue 
Code and that have ``widespread applicability'' to individuals 
or small businesses, within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(g)(2) of H. Res. 5 (114th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

            SECTION 164 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 164. TAXES.

    (a) General Rule.--Except as otherwise provided in this 
section, the following taxes shall be allowed as a deduction 
for the taxable year within which paid or accrued:
          (1) State and local, and foreign, real property 
        taxes.
          (2) State and local personal property taxes.
          (3) State and local, and foreign, income, war 
        profits, and excess profits taxes.
          (4) The GST tax imposed on income distributions.
    In addition, there shall be allowed as a deduction State 
and local, and foreign, taxes not described in the preceding 
sentence which are paid or accrued within the taxable year in 
carrying on a trade or business or an activity described in 
section 212 (relating to expenses for production of income). 
Notwithstanding the preceding sentence, any tax (not described 
in the first sentence of this subsection) which is paid or 
accrued by the taxpayer in connection with an acquisition or 
disposition of property shall be treated as part of the cost of 
the acquired property or, in the case of a disposition, as a 
reduction in the amount realized on the disposition.
    (b) Definitions and Special Rules.--For purposes of this 
section--
          (1) Personal property taxes.--The term ``personal 
        property tax'' means an ad valorem tax which is imposed 
        on an annual basis in respect of personal property.
          (2) State or local taxes.--A State or local tax 
        includes only a tax imposed by a State, a possession of 
        the United States, or a political subdivision of any of 
        the foregoing, or by the District of Columbia.
          (3) Foreign taxes.--A foreign tax includes only a tax 
        imposed by the authority of a foreign country.
          (4) Special rules for gst tax.--
                  (A) In general.--The GST tax imposed on 
                income distributions is--
                          (i) the tax imposed by section 2601, 
                        and
                          (ii) any State tax described in 
                        section 2604 (as in effect before its 
                        repeal),
            but only to the extent such tax is imposed on a 
        transfer which is included in the gross income of the 
        distributee and to which section 666 does not apply.
                  (B) Special rule for tax paid before due 
                date.-- Any tax referred to in subparagraph (A) 
                imposed with respect to a transfer occurring 
                during the taxable year of the distributee (or, 
                in the case of a taxable termination, the 
                trust) which is paid not later than the time 
                prescribed by law (including extensions) for 
                filing the return with respect to such transfer 
                shall be treated as having been paid on the 
                last day of the taxable year in which the 
                transfer was made.
          (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.--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, and
                          (ii) as if State and local general 
                        sales taxes were referred to in a 
                        paragraph thereof.
                  (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 may be determined 
                under tables.--
                          (i) In general.--At the election of 
                        the taxpayer for the taxable year, the 
                        amount of the deduction allowed under 
                        this paragraph for such year shall be--
                                  (I) the amount determined 
                                under this paragraph (without 
                                regard to this subparagraph) 
                                with respect to motor vehicles, 
                                boats, and other items 
                                specified by the Secretary, and
                                  (II) the amount determined 
                                under tables prescribed by the 
                                Secretary with respect to items 
                                to which subclause (I) does not 
                                apply.
                          (ii) Requirements for tables.--The 
                        tables prescribed under clause (i)--
                                  (I) shall reflect the 
                                provisions of this paragraph,
                                  (II) shall be based on the 
                                average consumption by 
                                taxpayers on a State-by-State 
                                basis (as determined by the 
                                Secretary) of items to which 
                                clause (i)(I) does not apply, 
                                taking into account filing 
                                status, number of dependents, 
                                adjusted gross income, and 
                                rates of State and local 
                                general sales taxation, and
                                  (III) need only be determined 
                                with respect to adjusted gross 
                                incomes up to the applicable 
                                amount (as determined under 
                                section 68(b)).
                  (I) Application of paragraph.--This paragraph 
                shall apply to taxable years beginning after 
                December 31, 2003, and before January 1, 2015.
    (c) Deduction Denied in Case of Certain Taxes.--No 
deduction shall be allowed for the following taxes:
          (1) Taxes assessed against local benefits of a kind 
        tending to increase the value of the property assessed; 
        but this paragraph shall not prevent the deduction of 
        so much of such taxes as is properly allocable to 
        maintenance or interest charges.
          (2) Taxes on real property, to the extent that 
        subsection (d) requires such taxes to be treated as 
        imposed on another taxpayer.
    (d) Apportionment of Taxes on Real Property Between Seller 
and Purchaser.--
                  (1) General rule.--For purposes of subsection 
                (a), if real property is sold during any real 
                property tax year, then--
                  (A) so much of the real property tax as is 
                properly allocable to that part of such year 
                which ends on the day before the date of the 
                sale shall be treated as a tax imposed on the 
                seller, and
                  (B) so much of such tax as is properly 
                allocable to that part of such year which 
                begins on the date of the sale shall be treated 
                as a tax imposed on the purchaser.
          (2) Special rules.--
                  (A) in the case of any sale of real property, 
                if--
                          (i) a taxpayer may not, by reason of 
                        his method of accounting, deduct any 
                        amount for taxes unless paid, and
                          (ii) the other party to the sale is 
                        (under the law imposing the real 
                        property tax) liable for the real 
                        property tax for the real property tax 
                        year,
          then for purposes of subsection (a) the taxpayer 
        shall be treated as having paid, on the date of the 
        sale, so much of such tax as, under paragraph (1) of 
        this subsection, is treated as imposed on the taxpayer. 
        For purposes of the preceding sentence, if neither 
        party is liable for the tax, then the party holding the 
        property at the time the tax becomes a lien on the 
        property shall be considered liable for the real 
        property tax for the real property tax year.
                  (B) In the case of any sale of real property, 
                if the taxpayer's taxable income for the 
                taxable year during which the sale occurs is 
                computed under an accrual method of accounting, 
                and if no election under section 461(c) 
                (relating to the accrual of real property 
                taxes) applies, then, for purposes of 
                subsection (a), that portion of such tax 
                which--
                          (i) is treated, under paragraph (1) 
                        of this subsection, as imposed on the 
                        taxpayer, and
                          (ii) may not, by reason of the 
                        taxpayer's method of accounting, be 
                        deducted by the taxpayer for any 
                        taxable year,
            shall be treated as having accrued on the date of 
        the sale.
    (e) Taxes of Shareholder Paid by Corporation.--Where a 
corporation pays a tax imposed on a shareholder on his interest 
as a shareholder, and where the shareholder does not reimburse 
the corporation, then--
          (1) the deduction allowed by subsection (a) shall be 
        allowed to the corporation; and
          (2) no deduction shall be allowed the shareholder for 
        such tax.
    (f) Deduction for One-Half of Self-Employment Taxes.--
          (1) In general.--In the case of an individual, in 
        addition to the taxes described in subsection (a), 
        there shall be allowed as a deduction for the taxable 
        year an amount equal to one-half of the taxes imposed 
        by section 1401 (other than the taxes imposed by 
        section 1401(b)(2)) for such taxable year.
          (2) Deduction treated as attributable to trade or 
        business.--For purposes of this chapter, the deduction 
        allowed by paragraph (1) shall be treated as 
        attributable to a trade or business carried on by the 
        taxpayer which does not consist of the performance of 
        services by the taxpayer as an employee.
    (g) Cross References.--
          (1) For provisions disallowing any deduction for 
        certain taxes, see section 275.
          (2) For treatment of taxes imposed by Indian tribal 
        governments (or their subdivisions), see section 7871.

      B. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed by the bill, as reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italics, existing law in 
which no change is proposed is shown in roman):

            SECTION 164 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 164. TAXES.

    (a) General Rule.--Except as otherwise provided in this 
section, the following taxes shall be allowed as a deduction 
for the taxable year within which paid or accrued:
          (1) State and local, and foreign, real property 
        taxes.
          (2) State and local personal property taxes.
          (3) State and local, and foreign, income, war 
        profits, and excess profits taxes.
          (4) The GST tax imposed on income distributions. In 
        addition, there shall be allowed as a deduction State 
        and local, and foreign, taxes not described in the 
        preceding sentence which are paid or accrued within the 
        taxable year in carrying on a trade or business or an 
        activity described in section 212 (relating to expenses 
        for production of income). Notwithstanding the 
        preceding sentence, any tax (not described in the first 
        sentence of this subsection) which is paid or accrued 
        by the taxpayer in connection with an acquisition or 
        disposition of property shall be treated as part of the 
        cost of the acquired property or, in the case of a 
        disposition, as a reduction in the amount realized on 
        the disposition.
    (b) Definitions and Special Rules.--For purposes of this 
section--
          (1) Personal property taxes.--The term ``personal 
        property tax'' means an ad valorem tax which is imposed 
        on an annual basis in respect of personal property.
          (2) State or local taxes.--A State or local tax 
        includes only a tax imposed by a State, a possession of 
        the United States, or a political subdivision of any of 
        the foregoing, or by the District of Columbia.
          (3) foreign taxes.--A foreign tax includes only a tax 
        imposed by the authority of a foreign country.
          (4) Special rules for gst tax.--
                  (A) In general.--The GST tax imposed on 
                income distributions is--
                          (i) the tax imposed by section 2601, 
                        and
                          (ii) any State tax described in 
                        section 2604 (as in effect before its 
                        repeal),
            but only to the extent such tax is imposed on a 
        transfer which is included in the gross income of the 
        distributee and to which section 666 does not apply.
                  (B) Special rule for tax paid before due 
                date.-- Any tax referred to in subparagraph (A) 
                imposed with respect to a transfer occurring 
                during the taxable year of the distributee (or, 
                in the case of a taxable termination, the 
                trust) which is paid not later than the time 
                prescribed by law (including extensions) for 
                filing the return with respect to such transfer 
                shall be treated as having been paid on the 
                last day of the taxable year in which the 
                transfer was made.
          (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.--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, and
                          (ii) as if State and local general 
                        sales taxes were referred to in a 
                        paragraph thereof.
                  (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 may be determined 
                under tables.--
                          (i) In general.--At the election of 
                        the taxpayer for the taxable year, the 
                        amount of the deduction allowed under 
                        this paragraph for such year shall be--
                                  (I) the amount determined 
                                under this paragraph (without 
                                regard to this subparagraph) 
                                with respect to motor vehicles, 
                                boats, and other items 
                                specified by the Secretary, and
                                  (II) the amount determined 
                                under tables prescribed by the 
                                Secretary with respect to items 
                                to which subclause (I) does not 
                                apply.
                          (ii) Requirements for tables.--The 
                        tables prescribed under clause (i)--
                                  (I) shall reflect the 
                                provisions of this paragraph,
                                  (II) shall be based on the 
                                average consumption by 
                                taxpayers on a State-by-State 
                                basis (as determined by the 
                                Secretary) of items to which 
                                clause (i)(I) does not apply, 
                                taking into account filing 
                                status, number of dependents, 
                                adjusted gross income, and 
                                rates of State and local 
                                general sales taxation, and
                                  (III) need only be determined 
                                with respect to adjusted gross 
                                incomes up to the applicable 
                                amount (as determined under 
                                section 68(b)).
                  [(I) Application of paragraph.--This 
                paragraph shall apply to taxable years 
                beginning after December 31, 2003, and before 
                January 1, 2015.]
    (c) Deduction Denied in Case of Certain Taxes.--No 
deduction shall be allowed for the following taxes:
          (1) Taxes assessed against local benefits of a kind 
        tending to increase the value of the property assessed; 
        but this paragraph shall not prevent the deduction of 
        so much of such taxes as is properly allocable to 
        maintenance or interest charges.
          (2) Taxes on real property, to the extent that 
        subsection (d) requires such taxes to be treated as 
        imposed on another taxpayer.
    (d) Apportionment of Taxes on Real Property Between Seller 
and Purchaser.--
          (1) General rule.--For purposes of subsection (a), if 
        real property is sold during any real property tax 
        year, then--
                  (A) so much of the real property tax as is 
                properly allocable to that part of such year 
                which ends on the day before the date of the 
                sale shall be treated as a tax imposed on the 
                seller, and
                  (B) so much of such tax as is properly 
                allocable to that part of such year which 
                begins on the date of the sale shall be treated 
                as a tax imposed on the purchaser.
          (2) Special rules.--
                  (A) in the case of any sale of real property, 
                if--
                          (i) a taxpayer may not, by reason of 
                        his method of accounting, deduct any 
                        amount for taxes unless paid, and
                          (ii) the other party to the sale is 
                        (under the law imposing the real 
                        property tax) liable for the real 
                        property tax for the real property tax 
                        year,
          then for purposes of subsection (a) the taxpayer 
        shall be treated as having paid, on the date of the 
        sale, so much of such tax as, under paragraph (1) of 
        this subsection, is treated as imposed on the taxpayer. 
        For purposes of the preceding sentence, if neither 
        party is liable for the tax, then the party holding the 
        property at the time the tax becomes a lien on the 
        property shall be considered liable for the real 
        property tax for the real property tax year.
                  (B) In the case of any sale of real property, 
                if the taxpayer's taxable income for the 
                taxable year during which the sale occurs is 
                computed under an accrual method of accounting, 
                and if no election under section 461(c) 
                (relating to the accrual of real property 
                taxes) applies, then, for purposes of 
                subsection (a), that portion of such tax 
                which--
                          (i) is treated, under paragraph (1) 
                        of this subsection, as imposed on the 
                        taxpayer, and
                          (ii) may not, by reason of the 
                        taxpayer's method of accounting, be 
                        deducted by the taxpayer for any 
                        taxable year,
          shall be treated as having accrued on the date of the 
        sale.
    (e) Taxes of Shareholder Paid by Corporation.--Where a 
corporation pays a tax imposed on a shareholder on his interest 
as a shareholder, and where the shareholder does not reimburse 
the corporation, then--
          (1) the deduction allowed by subsection (a) shall be 
        allowed to the corporation; and
          (2) no deduction shall be allowed the shareholder for 
        such tax.
    (f) Deduction for One-Half of Self-Employment Taxes.--
          (1) In general.--In the case of an individual, in 
        addition to the taxes described in subsection (a), 
        there shall be allowed as a deduction for the taxable 
        year an amount equal to one-half of the taxes imposed 
        by section 1401 (other than the taxes imposed by 
        section 1401(b)(2)) for such taxable year.
          (2) Deduction treated as attributable to trade or 
        business.--For purposes of this chapter, the deduction 
        allowed by paragraph (1) shall be treated as 
        attributable to a trade or business carried on by the 
        taxpayer which does not consist of the performance of 
        services by the taxpayer as an employee.
    (g) Cross References.--
          (1) For provisions disallowing any deduction for 
        certain taxes, see section 275.
          (2) For treatment of taxes imposed by Indian tribal 
        governments (or their subdivisions), see section 7871.

                         VII. DISSENTING VIEWS

    The two permanent tax extender bills approved by the 
Republicans at the markup would add more than $224 billion to 
the deficit. Together with the seven bills that were approved 
by the Republicans in the previous markup, these nine bills 
would add more than $317 billion to the deficit. In the 113th 
Congress, Ways and Means Committee Republicans selectively 
approved 14 of the more than 50 expired tax provisions, 
totaling more than $825 billion worth of deficit-financed, 
permanent tax cuts. This selective approach failed last 
Congress, with none of these permanent provisions being enacted 
into law. The bills marked up by the Committee set us down a 
partisan path, when we should be embracing bipartisanship and 
working in a responsible, bipartisan manner on tax reform.
    Even though these bills were introduced individually with 
some bipartisan support, the opposition to these bills is based 
on the position that these tax provisions should not be made 
permanent by adding to the deficit without any revenue offset. 
We recognize that a deduction for state and local sales taxes 
in lieu of state and local income taxes is particularly 
valuable to taxpayers in states that currently do not have 
income taxes. But the approach that the Committee Republicans 
are taking with respect to this and other important legislation 
undermines the bipartisan support that the provisions enjoy. 
Indeed, this provision was not included in the Republican tax 
reform plan introduced by the Ways and Means Committee Chairman 
last Congress, and the plan specifically repealed the deduction 
for state and local income taxes. The American people expect a 
tax code that maintains and supports our shared priorities, and 
each time the Committee considers these bills in a piecemeal 
approach, it is taking a step in the wrong direction and away 
from comprehensive tax reform.
    We all support the policy of providing parity for taxpayers 
in states that do not have income taxes. The markup was not to 
debate the merits of H.R. 622, which would make permanent the 
provision that allows for a deduction for state and local sales 
taxes in lieu of state and local income taxes.
    Finally, we also oppose the manner in which Republicans are 
proceeding--selecting to make permanent another two provisions 
in addition to the previously passed seven provisions at a cost 
of more than $317 billion without any offset from the more than 
50 tax provisions that expired at the end of last year. This 
approach is both fiscally irresponsible and contrary to the 
goals of bipartisan, comprehensive tax reform.
    Expired provisions must be dealt with in a comprehensive 
manner. The Republicans did not take up other tax extenders 
that also are important to Democratic Committee Members. Left 
to an uncertain fate are provisions like the Work Opportunity 
Tax Credit, the New Markets Tax Credit, and the renewable 
energy tax credits, as well as the long-term status of the 
Earned Income Tax Credit, the Child Tax Credit, and the 
American Opportunity Tax Credit.

                                                      Sander Levin.

                                  [all]