TTU professor reminds sales tax is deductible for tax filers who itemize

The April 15 deadline for filing income tax returns is an annual rite of spring that’s unique to the American experience — but ever-changing nuances in laws governing the preparation process make no two “Tax Days” exactly alike.

This year, for instance, people can deduct the amount of their annual sales tax for the first time since 1987 if they itemize deductions on schedule A of form 1040, says Richard Rand, associate professor of accounting and law at Tennessee Tech University.

“Since 1987, sales taxes haven’t been deductible for people who itemize on schedule A of form 1040, but because of this new law, most Tennesseans who itemize deductions will be allowed to deduct sales taxes on their 2004 tax return,” he said.

The law actually allows deductibility of either sales taxes or state income taxes, but because Tennessee has no state income tax other than the Hall income tax, which applies only to interest earned from bonds and notes or stock dividends, that portion of the law is not applicable here.

To take advantage of the new feature, filers must refer to either supporting sales tax receipt documentation or an options sales tax table provided by the Internal Revenue Service.

Taxpayers who can provide actual sales tax receipts seem to get a higher deduction, Rand said. “Local accountants I’ve talked to indicate that taxpayers who use actual receipts instead of the tax tables typically receive a sales tax deduction that’s 30-40 percent higher than the IRS estimate.”

If taxpayers have failed to retain their sales tax receipts, though, their only other option is to use the tax tables created by the IRS to estimate the amount of sales tax they paid in 2004 — and Rand advises that they develop a plan for collecting and maintaining their sales tax receipts for 2005 deductions.

“The amount of the deduction is based on your total income and the number of exemptions you claim,” he said.

Because the tables are based only on Tennessee’s general sales tax rate of 7 percent, however, they don’t include the individual county sales tax rates that are charged on purchases in addition to the state sales tax.

“So you will need to include an additional amount on the table estimate to account for the county sales tax charged in your specific county,” he said.

Putnam County’s sales tax rate, for example, is 2.75 percent in addition to the state’s 7 percent, so the total sales tax rate Putnam County residents would claim is 9.75 percent — which is 39 percent higher than the amount provided by the IRS tables alone, Rand pointed out.

In addition to the general sales tax deduction provided by the table, filers can also deduct sales taxes paid on certain large purchases — such as automobiles, aircraft, boats, homes or home building materials — but only up to the amount of the state’s general sales tax rate.

Filers can prepare their own tax returns by purchasing popular tax preparation software available at many retail, computer and office supply stores.

“These programs generally cost around $30 and require only an average level of familiarity with computers to install and use,” Rand said. “Tax software programs are typically user-friendly and include many help screens and videos, in addition to performing most of the calculations needed to complete the return.

“If you’re not comfortable using the available software to prepare and file your own tax return, then you should seek the assistance of a certified tax professional in your area,” he continued.

The average individual tax return will cost between $150-175, with simple returns costing as little as $75. “It will give you the peace of mind of knowing that you’ve minimized the amount of your money the IRS gets to keep this year,” Rand said.

For more information about this year’s sales tax deduction, visit the IRS web site at and search for “document 600.”